A decrease in taxes (when Ricardian equivalence doesn't hold)causes the real interest rate to ________ and output to ________ in the short run,before prices adjust to restore equilibrium.
A)rise;rise
B)rise;fall
C)fall;rise
D)fall;fall

Question

Quizplus · Accepted Answer

A decrease in taxes increases disposable income, which leads to an increase in aggregate demand. This increase in demand causes the real interest rate to rise and output to rise in the short run.

A Decrease in Taxes (When Ricardian Equivalence Doesn't Hold)causes the Real