For this question,assume that the Fed is expected to respond to any event by keeping the interest rate constant (i.e.,equal to its initial level).An unexpected tax cut will cause
A)stock prices to fall.
B)stock prices to rise.
C)no change in stock prices.
D)an ambiguous effect on stock prices.

Question

Quizplus · Accepted Answer

An unexpected tax cut will lead to an increase in disposable income of individuals, which will increase their spending and boost the sales and profits of the firms. This will increase the demand for stocks, leading to an increase in stock prices.

For This Question,assume That the Fed Is Expected to Respond