If we lower taxes today but raise them in the future,and if b = 1,
A)household wealth rises because they save less.
B)households will increase today's consumption.
C)present wealth remains unchanged and consumption does not change.
D)the government can rely on households to spend more today.
E)saving today will fall and lifetime consumption rises.

Question

Quizplus · Accepted Answer

If we lower taxes today but raise them in the future, and if b = 1, households will know that the tax cuts are temporary and will adjust their behavior accordingly. They will not increase their consumption today because they understand that they will have to repay those tax cuts with higher taxes in the future. Therefore, present wealth remains unchanged and consumption does not change.

If We Lower Taxes Today but Raise Them in the Future,and