Suppose Policy Makers Decide to Reduce Taxes

Multiple Choice

Suppose policy makers decide to reduce taxes.This fiscal policy action will cause which of the following to occur?

A) The LM curve shifts and the economy moves along the IS curve.
B) The IS curve shifts and the economy moves along the LM curve.
C) Both the IS and LM curves shift.
D) Neither the IS nor the LM curve shifts.
E) Output will change causing a change in money demand and a shift of the LM curve.