A permanent decrease in taxes leads to
A) a large increase in current consumption.
B) a small increase in current consumption.
C) a small decrease in current consumption.
D) a large decrease in future consumption.
E) no changes to consumption.

Question

Quizplus · Accepted Answer

A permanent decrease in taxes would increase disposable income, which would then lead to an increase in consumption. The degree of increase would depend on the marginal propensity to consume of the individuals or households affected by the tax cut. If the tax cut is significant enough, there could be a large increase in current consumption.

A Permanent Decrease in Taxes Leads to