Suppose There Is a Simultaneous Tax Cut and Open Market

question 18

Multiple Choice

Suppose there is a simultaneous tax cut and open market purchase of bonds. Which of the following must occur as a result of this?

• A) Output increases.
• B) Output decreases.
• C) The interest rate increases.
• D) The interest rate decreases.
• E) Both output and the interest rate increase.

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Definitions:

Free-Trade Policies

Economic policies that allow imports and exports to occur without restrictive tariffs, quotas, or other barriers to trade.

Protection

The practice of shielding a sector of the economy from foreign competition.

General Agreement on Tariffs and Trade

An international treaty aimed at promoting international trade by reducing or eliminating trade barriers such as tariffs and quotas; it was replaced by the World Trade Organization (WTO) in 1995.

Voluntary Export Restraint

A self-imposed limitation by exporting countries on the volume of their exports of a particular good.