If Congress passed a tax increase at the request of the president to reduce the budget deficit, but the Fed held the money supply constant, then the two policies together would generally lead to ______ income and a ______ interest rate.
A) lower; lower
B) lower; higher
C) no change in; lower
D) no change in; higher

Question

Quizplus · Accepted Answer

When Congress increases taxes to reduce the budget deficit while the Fed holds the money supply constant, it generally leads to lower income because the tax increase can reduce consumption and investment spending. With lower demand for goods and services, the economy might slow down, leading to lower income. Additionally, with lower demand in the economy, there's less demand for loans, which can lead to lower interest rates.

If Congress Passed a Tax Increase at the Request of the President