increases in taxes shifts aggregate demand to the left. In the short run this makes output...

increases in taxes shifts aggregate demand to the left. In the short run this makes output fall which makes the interest rates rise. Is it that correct？Why？

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Expert Solution

Increase in taxes will lead to decrease in aggregate demand which will shift the aggregate demand to the left leading to a decrease in prices.

However in the IS-LM model, increase in taxes will shift the IS curve to the left leading to an increase in interest rate.

Thus given statement is true

Rahul Sunny answered 1 year ago

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