Assume That the Economy Is Initially Operating at the Natural

question 2

Multiple Choice

Assume that the economy is initially operating at the natural level of output. An increase in taxes will cause which of the following?

• A) A decrease in employment and no change in the nominal wage in the short run.
• B) A decrease in output and no change in the aggregate price level in the short run.
• C) An increase in the aggregate price level, no change in output and no change in the interest rate in the medium run.
• D) An increase in the interest rate and investment in the medium run.
• E) An increase in investment in the medium run.