If consumers foresee future taxes completely,a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause
A)a rightward shift in the saving curve and a rightward shift in the investment curve.
B)a shift in neither the saving nor the investment curve.
C)a leftward shift in the saving curve, but no shift in the investment curve.
D)no shift in the saving curve, but a rightward shift in the investment curve.

Question

Quizplus · Accepted Answer

If consumers fully anticipate future taxes, a reduction in taxes this year offset by a future increase would not change their overall consumption and saving plans. They understand that any tax cut now will be compensated by higher taxes later, leaving their lifetime budget unchanged. This understanding leads to no shift in either the saving or the investment curve.

If Consumers Foresee Future Taxes Completely,a Reduction in Taxes This