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Assume the economy is at full employment as of January 2018 and the government passes a tax bill that reduces
taxes by $100B. The tax bill, however, does not change government spending. (These are are all short answer, but please provide enough detail to explain your answer. That is, it is not sufficient to claim prices go down or output goes up. Explain, briefly, why that happened.)
A. What effect is this likely to have on output and prices levels?
B. What effect will this have on interest rates and investment?
C. What is the likely response by the Federal Reserve?
D. Suppose that the economy was below full employment, how would that change your answer?
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