Suppose that many families consider consumer durables such as houses and cars as potential bequests. This ________ Barro's argument that current tax cuts, which imply ________ future taxes, mainly go to increasing ________.

Question

Quizplus · Accepted Answer

If families view consumer durables as potential bequests, current tax cuts may not necessarily lead to increased current consumer spending. Instead, families may choose to save the extra income for future generations through bequests. This weakens Barro's argument that tax cuts lead to increased current consumption. Additionally, the answer must include "higher" for the implication of future taxes, as tax cuts imply higher future taxes due to the need to finance the resulting budget deficit. Option A is also tempting, but it is contradictory to Barro's argument that tax cuts mainly go to increasing saving for future generations since it suggests that the increased saving is due to bequests rather than saving for future consumption.

Suppose That Many Families Consider Consumer Durables Such as Houses