Suppose Congress raises taxes and the monetary authorities slow the annual money supply growth from 10 percent to 5 percent. If decision makers accurately anticipate the impact of these policy changes on prices,

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If decision makers accurately anticipate the impact of these policy changes on prices, there will be no effect on unemployment. This is because the fiscal policy (raising taxes) will reduce demand in the economy, leading to lower output and inflation, while the monetary policy (slowing money supply growth) will also reduce inflationary pressures. The overall effect should be a stabilization of the economy with no significant change in employment levels.

Suppose Congress Raises Taxes and the Monetary Authorities Slow the Annual