In the Keynesian model in the long run,an increase in taxes causes the price level to ________ and the real interest rate to ________.
A)fall; rise
B)fall; fall
C)rise; rise
D)rise; fall

Question

Quizplus · Accepted Answer

In the Keynesian model, an increase in taxes reduces consumer spending, leading to a decrease in aggregate demand. This decrease in demand leads to a lower price level. The reduced demand also leads to lower interest rates as there is less competition for funds.

In the Keynesian Model in the Long Run,an Increase in Taxes