If an Economy Is Experiencing Both Full Employment and Price

question 80

Multiple Choice

If an economy is experiencing both full employment and price stability, within the Keynesian model, a major tax reduction probably would cause

• A) an increase in unemployment in the near future.
• B) an increase in the general level of prices unless government expenditures are also reduced.
• C) an increase in the interest rate since individuals will reduce their savings in response to the tax cut.
• D) a decrease in consumption unless the expected budget deficit is financed by selling bonds to foreigners.

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Definitions:

Synapses

The junctions between neurons through which nerve impulses pass, enabling communication within the brain and nervous system.

Specialized Cell

A cell that is uniquely suited to perform a particular function, such as a neuron in the nervous system or a red blood cell in the circulatory system.

Nervous System

The part of an organism that coordinates its actions by transmitting signals to and from different parts of its body.

Neuron

A specialized cell transmitting nerve impulses; the basic building block of the nervous system.