We Know with Certainty That a Decrease in Tax Must

question 34

Multiple Choice

We know with certainty that a decrease in tax must cause which of the following?

• A) A decrease in output if the central bank simultaneously pursues a contractionary monetary policy.
• B) An increase in the interest rate and an increase in investment.
• C) An increase in the interest rate and a decrease in investment.
• D) An increase in the interest rate and an upward shift in the LM curve.
• E) An increase in the interest rate and an ambiguous effect on investment.

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Definitions:

Issuing Bank Notes

The process by which a central bank or monetary authority prints and distributes the national currency, which serves as legal tender.

Reserve Requirements

Central bank regulations that set the minimum amount of reserves that must be held by a commercial bank, affecting the bank's ability to lend.

Board of Governors

An executive committee or oversight body responsible for setting policies and managing the affairs of an organization, such as a central bank or educational institution.

Bank Acts

Bank Acts are laws and regulations that govern the operations, establishment, and oversight of banks, aiming to ensure their stability and integrity.