A decreased government deficit created by a lump-sum tax increase will increase national saving if

Question

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A lump-sum tax increase will reduce disposable income and therefore decrease consumption. This decrease in consumption will lead to an increase in national saving. Option A is incorrect because the growth of the value of government bonds outstanding is not directly related to a lump-sum tax increase. Option C is incorrect because a primary budget surplus is not necessary for an increase in national saving. Option D is incorrect because the real interest rate and the growth rate of real GNP do not directly relate to a lump-sum tax increase.

A Decreased Government Deficit Created by a Lump-Sum Tax Increase