Answer to Question #239141 in Microeconomics for akky

Question

Suppose there is a purchase of bonds by the central bank and a simultaneous tax cut. We know with certainty that this combination of policies must cause

Select one:( If you sure, with explanation please)

A.

a reduction in output.

B.

an increase in the interest rate.

C.

a reduction in the interest rate.

D.

an increase in output.

Answer 1

D.increase in output: The output of the bank will increase as the money will reduce , and if it the bonds are puchased on a free market the value of maney in the market will increase, while the cut on tax will increase the income for the central bank