If the time path of government purchases does not change and the government cuts lump sum taxes, then:
A)the interest rate does not change.
B)the real wage rate does not change.
C)the future capital stock does not change.
D)all of the above.

Question

Quizplus · Accepted Answer

When the government cuts lump-sum taxes without changing the time path of government purchases, it increases disposable income, leading to an increase in consumption and potentially investment. This can affect interest rates due to changes in demand for funds, real wage rates due to changes in labor demand, and the future capital stock due to changes in investment. However, the question asserts none of these change, which is not consistent with economic theory, suggesting a misunderstanding in the question's premise.

If the Time Path of Government Purchases Does Not Change