Assume the Economy Is in a Recession and the Federal

question 15

Multiple Choice

Assume the economy is in a recession and the federal government decides to cut personal income tax rates.All else equal,the cut in tax rates should

• A) increase consumption expenditures and cause real GDP to increase relative to potential GDP.
• B) increase the nominal interest rate and cause potential GDP to increase relative to real GDP.
• C) decrease the real interest rate and decrease expectations of inflation.
• D) increase the target interest rate and cause real GDP to fall relative to potential GDP.

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Unicorn

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