A temporary tax change will significantly affect current consumption
A)but only if it does not come as a surprise
B)if liquidity constraints exist
C)but only for the elderly
D)as long as it does not lead to a budget deficit
E)none of the above

Question

Quizplus · Accepted Answer

If liquidity constraints exist, a temporary tax change can significantly affect current consumption. This is because individuals with liquidity constraints are more likely to rely on their current income for consumption and may not have the means to adjust their spending in response to the tax change. The other options are not necessarily true; a surprise tax change may still affect consumption, the effect is not limited to the elderly, and the tax change leading to a budget deficit is not mentioned as a necessary condition for affecting consumption.

A Temporary Tax Change Will Significantly Affect Current Consumption