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5 November, 07:31

The Romer and Romer 2010 paper in the American Economic Review found that tax changes that are made to promote long-run growth or to reduce an inherited budget deficit tend to result in ___.

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  1. 5 November, 08:36
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    Group of answer choices:

    A) An uncertain correlation between taxes and output GDP.

    B) A strong negative relationship between taxes and output GDP.

    C) A strong positive relationship between taxes and output GDP.

    D) A weak positive relationship between taxes and output GDP.

    Answer:

    The correct answer is letter "C": A strong positive relationship between taxes and output GDP.

    Explanation:

    According to "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks" published by Christina and David Romer in 2010 tax increases are highly contractionary causing relevant-robust effects in the overall economy, positively affecting the Gross Domestic Product (GDP) output level.
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