Question

4. Jack is a borrower without binding constraints. Jill is a borrower with binding constraints. What is the impact on Jack and Jill's con- sumption if: (a) "The Hon Mia Amor Mottley implements a temporary tax cut (b) The Hon Mia Amor Mottley announces a future tax cut

Answer 1

Answer -

A constraint is said to be binding constraint when any change in availability of additional resources results in change in output.

A constraint is said to be without binding constraints when any change in in availability of additional resources results in no change in output.

a) as Jack is a borrower without binding constraints, implementation of temporary tax cut will not result in change in his consumption, while Jil is with binding constraints, temporary tax cut will result in change of his consumption.

b) any further tax cut will also have same impact as in answer (a)