What could explain why a decrease in taxes could lead to a less-than-proportionate increase in output? A. Consumers may choose to save much of the tax cut in anticipation of having to pay higher taxes in the future. B. As a result of diminishing returns to current consumption, consumers may choose to spread the extra spending over the long term rather than consuming the proceeds of a tax cut all at once. C. A decrease in taxes will necessitate lower government outlays, thus largely offsetting the higher consumption expenditures of households. D. All of the above. E. A and B only.

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24 March, 06:38

What could explain why a decrease in taxes could lead to a less-than-proportionate increase in output? A. Consumers may choose to save much of the tax cut in anticipation of having to pay higher taxes in the future. B. As a result of diminishing returns to current consumption, consumers may choose to spread the extra spending over the long term rather than consuming the proceeds of a tax cut all at once. C. A decrease in taxes will necessitate lower government outlays, thus largely offsetting the higher consumption expenditures of households. D. All of the above. E. A and B only.

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Jeffery Joyce · Answer 1

A. Consumers may choose to save much of the tax cut in anticipation of having to pay higher taxes in the future.

B. As a result of diminishing returns to current consumption, consumers may choose to spread the extra spending over the long term rather than consuming the proceeds of a tax cut all at once.

Answer is E. (A and B only)