g 3. Problems and Applications Q3 The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the government announced a reduction in taxes on income from capital investments, such as new factories. If investors believed that capital taxes would remain low, the government's action would lead to a level of investment. After investors have responded to the announced tax reduction, the government an incentive to renege on its policy. True or False: Given your answer to the preceding part, investors would not believe the government's announcement. True False
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g 3. Problems and Applications Q3 The problem of time inconsistency applies to fiscal policy as well...
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