Suppose there is a simultaneous tax cut and open market sale of bonds. Which of the following must occur as a result of this?

Question

Quizplus · Accepted Answer

A simultaneous tax cut and open market sale of bonds would lead to an increase in the supply of government bonds in the market, which would make them less attractive to investors, leading to a decrease in their price and an increase in the interest rate. This would discourage investment and lead to a decrease in output in the short run. Therefore, option C is the most likely outcome.

Suppose There Is a Simultaneous Tax Cut and Open Market