Using the Keynesian model,the effect of a decrease in the effective tax rate on capital 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)an increase; an increase
D)no change; a decrease

Question

Quizplus · Accepted Answer

According to the Keynesian model, a decrease in the effective tax rate on capital would increase investment, causing an increase in aggregate demand. This would result in an increase in output and an increase in the real interest rate as the demand for loanable funds rises. Therefore, the correct answer is C, an increase in the real interest rate and an increase in output in the short run.

Using the Keynesian Model,the Effect of a Decrease in the Effective