What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run? | Faculties

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Rakesh Kumar

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📊 International Economics

Q. What is the effect of an increase in taxes under fixed exchange rates and perfect asset substitutability in the short run?

(A) An increase in output and no change in interest rates.
(B) A decline in output and interest rates.
(C) A decline in output and no change in interest rates.
(D) An increase in output and interest rates.

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✅ Correct Answer: (A) An increase in output and no change in interest rates.

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