If an Economy Is Experiencing Both Full Employment and Price

question 80

Multiple Choice

If an economy is experiencing both full employment and price stability, within the Keynesian model, a major tax reduction probably would cause

• A) an increase in unemployment in the near future.
• B) an increase in the general level of prices unless government expenditures are also reduced.
• C) an increase in the interest rate since individuals will reduce their savings in response to the tax cut.
• D) a decrease in consumption unless the expected budget deficit is financed by selling bonds to foreigners.