Using the Keynesian model,the effect of an increase in corporate taxes would be to cause ________ in the real interest rate and ________ in output in the short run.
A)a decrease;a decrease
B)a decrease;no change
C)a decrease;an increase
D)no change;a decrease

Question

Quizplus · Accepted Answer

In the Keynesian model, an increase in corporate taxes would decrease the after-tax profit of firms, leading to a decrease in investment spending. This decrease in investment would shift the aggregate demand curve to the left, leading to a decrease in both the real interest rate and the level of output in the short run. Therefore, choice A is the correct answer.

Using the Keynesian Model,the Effect of an Increase in Corporate