In 2001, President George W. Bush and Federal Reserve Chairman Alan Greenspan were both concerned about a sluggish U.S. economy. They also were concerned about the large U.S. trade balance deficit. To help stimulate the economy, President Bush proposed a tax cut. What are the effects of the proposed policy using the IS-LM model?

Select one:

A tax cut shifts the IS to the right resulting in higher interest rates, home currency appreciation, and bigger trade balance deficits.

A tax cut shifts the IS to the right resulting in higher interest rates, home currency appreciation, and lower trade balance deficits.

A tax cut shifts the IS to the right resulting in higher interest rates, home currency depreciation, and lower trade balance deficits.

A tax cut shifts the IS curve to the left resulting in lower interest rates, home currency depreciation, and lower trade balance deficits.

A tax cut shifts the IS to the right resulting in higher interest rates, home currencydepreciation, and bigger trade balance deficits.