Assume that the economy is closed (i.e. no import or export). There is a decrease in...

Transcribed Image Text:

Assume that the economy is closed (i.e. no import or export). There is a decrease in taxes. What happens to interest rate in the Medium Run? a. Increase b. Decrease c. Unchanged d. Indeterminate Assume that the economy is closed (i.e. no import or export). There is a decrease in taxes. What happens to interest rate in the Medium Run? a. Increase b. Decrease c. Unchanged d. Indeterminate

Answer rating: 100% (QA)

b Decrease When taxes are decreased the governments budget deficit decreases leading to less borrowing from the public This reduces the demand for credit so the interest rate decreases In the medium run this decrease in interest rate is likely to persist Explanation In the medium run the decrease in taxes is likely to lead to a decrease in interest rates as the government ... View the full answer