Assume the economy is in a recession and the Federal government decides to cut personal income tax rates. All else equal, the cut in tax rates should
A) increase consumption expenditures and cause real GDP to increase relative to potential GDP.
B) increase the nominal interest rate and cause potential GDP to increase relative to real GDP.
C) decrease the real interest rate and decrease expectations of inflation.
D) increase the target interest rate and cause real GDP to fall relative to potential GDP.
A
You might also like to view...
Important factors that change the demand for dollars and hence shift the demand curve for dollars include which of the following?
I. interest rates around the world II. the current exchange rate III. the expected future exchange rate A) I and II B) I and III C) II D) I, II, and III
Historical analysis of real interest rates in the United States shows that
A) real interest rates were unusually low in both the 1970s and 1980s. B) real interest rates were unusually high in both the 1970s and 1980s. C) real interest rates were unusually low in the 1970s and unusually high in the 1980s. D) real interest rates were unusually low in the 1980s, spurring the economic growth that occurred during the Reagan administration.