1. Suppose the economy begins with output equal to its natural level. Then there is a reduction in income taxes. a. What are the immediate effects of a reduction in income taxes on the position of the AD, AS, IS, and LM curves in the SR. b. Show how an economy moves from the SR equilibrium to the LR equilibrium. c. What happens to consumption and investment in the LR?

1. Suppose the economy begins with output equal to its natural level. Then there is a reduction in income taxes. a. What are the immediate effects of a reduction in income taxes on the position of the AD, AS, IS, and LM curves in the SR. b. Show how an economy moves from the SR equilibrium to the LR equilibrium. c. What happens to consumption and investment in the LR?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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