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)an increase in the real interest rate and a decrease in desired investment.
B)a decrease in the real interest rate and an increase in desired investment.
C)a decrease in the real interest rate and an uncertain effect on desired investment.
D)a change in neither the real interest rate nor desired investment.

Question

Quizplus · Accepted Answer

If consumers foresee future taxes completely, they will save the tax reduction to pay for future tax increases, leaving consumption, real interest rates, and desired investment unchanged.

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