Jennifer earns an above average income and holds part of her wealth in the form of government bonds. Curtis earns an average income and holds no government bonds. Government increases taxes in order to pay the debt. What is the most likely results?

Question

Quizplus · Accepted Answer

Since Jennifer holds government bonds, she will be directly impacted by the tax increase as the government may reduce the interest payments on the bonds or use the funds from the tax increase to repay the bonds, resulting in a decrease in Jennifer's income. On the other hand, Curtis, who does not hold government bonds, will be less affected by the tax increase. Therefore, income will be redistributed from Curtis to Jennifer. Investment may decrease due to the tax increase, and there is no evidence to suggest that the productive capabilities of the economy will increase.

Jennifer Earns an Above Average Income and Holds Part of Her