Assume That the Economy Is Initially Operating at the Natural

Multiple Choice

Assume that the economy is initially operating at the natural level of output. An increase in taxes will cause which of the following?

A) A decrease in employment and no change in the nominal wage in the short run.
B) A decrease in output and no change in the aggregate price level in the short run.
C) An increase in the aggregate price level, no change in output and no change in the interest rate in the medium run.
D) An increase in the interest rate and investment in the medium run.
E) An increase in investment in the medium run.