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 reduction in output and no change in the aggregate price level in the short run

b. a reduction in employment and no change in the nominal wage in the short run

c. a decrease in investment in the medium run

d. an increase in the aggregate price level, no change in output and no change in the interest rate in the medium run