When a government reduces its deficits by increasing taxes, in the medium run, a. output returns to potential. b. IS curve shifts inward to the left. c. interest rate is higher. d. output increases. Explain..

When a government reduces its deficits by increasing taxes, in the medium run, a. output returns to potential. b. IS curve shifts inward to the left. c. interest rate is higher. d. output increases. Explain..

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter16: Budget Deficits In The Short And Long Run

Section: Chapter Questions

Problem 2TY

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Question

When a government reduces its deficits by increasing taxes, in the medium run,
a. output returns to potential.
b. IS curve shifts inward to the left.
c. interest rate is higher.
d. output increases.

Explain..

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