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Roar Roar
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6 years ago
Suppose there are two types of bonds (one-year bonds and two-year bonds) and that the yield curve is initially upward sloping in period t. Note: For this question assume that: (1) expected inflation is zero; and (2) the relevant interest rate on the vertical axis of the IS-LM model is the one-year interest rate. Based on our understanding of the IS-LM model, of the yield curve and of financial markets, we know with certainty that an announcement in period t of a partially unexpected future increase in taxes (to be implemented in period t+1) will have which of the following effects?
A) stock prices will increase in period t
B) stock prices will fall in period t
C) the yield curve will become steeper in period t
D) none of the above
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Macroeconomics

Macroeconomics


Edition: 6th
Authors:
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vonCOLLINZOvonCOLLINZO
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Roar Author
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