What are effects of increasing taxes in short and medium run

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Reference no: EM131091353

The US government decides to reduce the government budget deficit by increasing taxes and keeping government expenditures at the existing level.

a) What are the effects of increasing taxes in the short and medium run for the US economy?

b) Is it possible to change the natural rate of unemployment (the natural level of output)? How?

The US economy should be analysed as an open economy with flexible exchange rates.

Hint: The AD relationship in the medium run is: Y = Y(M/P, EP/P*, G, T)

Reference no: EM131091353

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