During the third quarter of 1997, Japanese GDP was falling at an annual rate of over 11 percent. Many blamed the big increase in Japan's taxes in the spring of 1997, which was designed to balance the budget. a. Explain how an increase in taxes with the economy growing slowly could cause a recession. b. If you were head of the Japanese central bank (the same as our FED), how would you respond? What impact would your policy have on the level of investment?

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