Suppose the government decided to ease monetary policy,then increase taxes.In the short run in the Keynesian model,the effect of these policies would be to ________ the real interest rate and ________ the level of output.

Question

Quizplus · Accepted Answer

Easing monetary policy typically lowers real interest rates, while increasing taxes tends to reduce output. However, the combined effect on output is ambiguous because the expansionary effect of the monetary policy might offset the contractionary effect of the tax increase, making the overall impact on output uncertain.

Suppose the Government Decided to Ease Monetary Policy,then Increase Taxes