Question: Consider a variant of the IS-LM model studied in class, where Investment, I=I0+b1*Y-b2*r, and the demand for money, L(r,Y)=m0+k*Y-h*r. We know with certainty that a

Consider a variant of the IS-LM model studied in class, where Investment, I=I0+b1*Y-b2*r, and

the demand for money, L(r,Y)=m0+k*Y-h*r. We know with certainty that a tax increase must

cause which of the following?

Group of answer choices

a decrease in the interest rate and an increase in investment

no change in output if the Fed simultaneously pursues expansionary monetary policy

a decrease in the interest rate and an ambiguous effect on investment

an increase in the interest rate and an upward shift in the LM curve

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