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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Could you please do a further explanation on the C part?
Because, as far as I remember, I heard that it becomes normal.
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