When a Government Reduces Its Deficits by Increasing Taxes,in the Medium

question 30

Multiple Choice

When a government reduces its deficits by increasing taxes,in the medium run,

• A)output returns to potential.
• B)output increases.
• C)interest rate is higher.
• D)IS curve shifts inward to the left.

---

Definitions:

Fair Value Adjustment

A financial reporting process that adjusts assets or liabilities to their current market value, rather than historical cost.

Valuation Account

A type of accounting balance that is used to adjust the value of a related account, often serving to decrease the value of the primary account.

Adjustment Account

A specific account used to adjust the value of related accounts to reflect accurate financial information.

Offset Account

A bank account that reduces the amount of interest payable on a loan by the amount held in the account.