If We Lower Taxes Today but Raise Them in the Future

question 61

Multiple Choice

If we lower taxes today but raise them in the future, and if $\beta$ = 1:

• A) households' wealth rises because they save less
• B) households will increase today's consumption
• C) present wealth remains unchanged and consumption does not change
• D) the government can rely on households to spend more today
• E) saving today will fall and lifetime consumption rises

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Definitions:

Bond Interest

The periodic payment made to bondholders, typically a fixed rate of interest paid on the bond's face value.

Tax Purposes

The consideration or treatment of transactions, events, or financial situations in relation to calculating tax liabilities.

Dividends

Payments made by a corporation to its shareholder members from the company's earnings.

Earnings

Income generated from a company's business activities over a certain period, often reported as net income.