An increase in taxes
I. violates the Taylor rule.
II. decreases real GDP.
III. forces the Fed to change its instruments.

Question

Quizplus · Accepted Answer

Increasing taxes can decrease consumers' purchasing power, which can lead to a decrease in aggregate demand and ultimately lower real GDP. It does not necessarily violate the Taylor rule, which is a monetary policy guideline, and does not directly force the Fed to change its instruments.

An Increase in Taxes