Which of the following circumstances is likely to exaggerate the expected shift in an IS curve in response to a reduction in taxes?
A) A perception that the tax change is temporary
B) A perception that the tax change is permanent
C) A prior anticipation of higher taxes throughout the foreseeable future
D) A prior anticipation that taxes would not change in the foreseeable future
E) The certain knowledge that nothing is certain but death and taxes

Question

Quizplus · Accepted Answer

A perception that a tax change is permanent can lead to a more significant shift in the IS curve in response to a tax reduction, as individuals and businesses adjust their spending and investment plans more substantially, expecting the tax environment to remain favorable over the long term.

Which of the Following Circumstances Is Likely to Exaggerate the Expected