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An Argument That Links an Increase in Federal Taxes with Lower

Question 27

Multiple Choice

An argument that links an increase in federal taxes with lower aggregate demand and therefore a contraction of GDP to a level below its potential


A) is consistent with the conclusions that would be drawn from a model with inflation and unemployment trade-offs.
B) is consistent with the conclusions that would be drawn from a model without inflation and unemployment trade-offs.
C) is inconsistent with a model that incorporates rational expectations.
D) can be believed only if expressed in terms of long-run and not short- term effects.
E) none of the above.

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