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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

If the government gives a Chapter 30, Problem 48CTQ, If the government gives a tax cut to everyone in the country, explain the mechanism by which this tax cut to everyone in the country, explain the mechanism by which this will cause interest rates to rise.

To determine

To write: The mechanism of the government to increase the interest rate in a country.

Explanation

Given that the government gives a tax cut of $ 300 to its citizens, one part of this extra income will go for consumption. The demand will increase. To meet the demand, supply has to increase. Now here can be two consequences that are short run consequences and long run consequences.

In short run, supply increase is not possible as this will cause a hike in price. The economy will face inflation. To control that inflation, the Federal Reserve will increase the interest rate...

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