In the IS-LM Model When Taxation Increases, in Short-Run Equilibrium

question 47

Multiple Choice

In the IS-LM model when taxation increases, in short-run equilibrium, the interest rate ______ and output ______.

• A) rises; falls
• B) rises; rises
• C) falls; rises
• D) falls; falls

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Definitions:

Type II Error

A statistical error that occurs when a null hypothesis is not rejected when it is in fact false.

Null Hypothesis

A statement of no effect or no difference, used as a default assumption in statistical hypothesis testing.

T Distribution

A probability distribution used in statistical analysis for small sample sizes, shaped similarly to a normal distribution but with thicker tails.

Standard Normal Distribution

A normal distribution with a mean of 0 and a standard deviation of 1.