Using the Keynesian Model,the Effect of an Increase in the Effective

question 40

Multiple Choice

Using the Keynesian model,the effect of an increase in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the short run.

• A)a decrease; a decrease
• B)a decrease; no change
• C)an increase; an increase
• D)no change; a decrease

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, reflecting the value of all goods and services produced by an economy in a given year.

Inflation

A measure of the rate at which the general level of prices for goods and services is rising, leading to a decrease in purchasing power.

National Income

The total value of all goods and services produced by a country's residents and businesses, including income from abroad, over a specified period.

Personal Consumption Expenditures

The component of a nation's economy that includes the total amount spent by individuals and households on goods and services.