If the government decreases taxes,which of the following would occur?
A) An increase in GDP,an increase in the price level,an increase in money demand,and an increase in the interest rate
B) An increase in GDP,a decrease in the price level,an increase in money demand,and a decrease in the interest rate
C) A decrease in GDP,a decrease in the price level,a decrease in money demand,and a decrease in the interest rate
D) A decrease in GDP,a decrease in the price level,an increase in money demand,and an increase in the interest rate
E) An increase in GDP,an increase in the price level,a decrease in money demand,and a decrease in the interest rate.

Question

Quizplus · Accepted Answer

A decrease in taxes increases disposable income, leading to an increase in spending and economic growth (GDP). This increased spending can lead to higher prices (inflation), increasing money demand. To combat inflation, the central bank may raise interest rates.

If the Government Decreases Taxes,which of the Following Would Occur