4. Us and IS graph, MP graph and LRAS/SRAS/AD graph to show the effect of a decrease in taxes on short-run output in two cases described in parts (a) and (b). Assume that the tax decrease is the same size in both cases and that the economy starts out at the same level of output in each case. a. The economy starts out above the zero-lower bound. b. The economy starts out below the zero-lower bound.
4. Us and IS graph, MP graph and LRAS/SRAS/AD graph to show the effect of a decrease in taxes on short-run output in two cases described in parts (a) and (b). Assume that the tax decrease is the same size in both cases and that the economy starts out at the same level of output in each case. a. The economy starts out above the zero-lower bound. b. The economy starts out below the zero-lower bound.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.7P
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Transcribed Image Text:4. Us and IS graph, MP graph and LRAS/SRAS/AD graph to show the effect of a decrease in taxes on
short-run output in two cases described in parts (a) and (b). Assume that the tax decrease is the
same size in both cases and that the economy starts out at the same level of output in each
case.
a. The economy starts out above the zero-lower bound.
b. The economy starts out below the zero-lower bound.
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