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.

a. if investors believed that capital taxes would remain low, the government's action would result in a capital stock.
b. after investors have responded to the announced tax reduction, the government an incentive to renege on its policy. true or false:
c. given your answer to the preceding part, investors would not believe the government's announcement.

i. true
ii. false