Consider an Economy Initially in Equilibrium with Neither a Trade

question 34

Multiple Choice

Consider an economy initially in equilibrium with neither a trade deficit nor a government deficit. If taxes were cut without a corresponding reduction in government spending, you should expect to see

• A) higher interest rates.
• B) an appreciated domestic currency.
• C) a reduction in net exports.
• D) both a trade deficit and a government deficit.
• E) all of the above.

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