(Last Word) According to the research of Christina Romer and David Romer, tax increases implemented to reduce an inherited budget deficit
A)reduce real output by the same amount as any other tax increase.
B)reduce real output by more than other tax increases.
C)reduce real output by less than other tax increases.
D)increase real output, contrary to what occurs with other tax increases.

Question

Quizplus · Accepted Answer

Tax increases implemented to reduce an inherited budget deficit reduce real output by less than other tax increases because they help to reduce the government's borrowing needs and thus reduce the amount of money that the government needs to borrow from the private sector. This reduces the amount of interest that the government has to pay on its debt, which frees up more money for private investment and consumption.

(Last Word) According to the Research of Christina Romer and David