a)Draw the effect this policy will have in the IS-LM framework (1 graph, Method 3). Label all axes,
b)Using your graph from part (a), describe the equilibrium change in 4 variables listed below following an increase in taxes:
1. Output:
2. The interest rate:
3. Consumption:
4. Investment:
c)Following the increase inT, suppose the Fed implements contractionary monetary policy. Draw the effects of the Fed’s reaction in the IS-LM framework (1 graph, Method 3).
d)Using your graph from part (c), describe the equilibrium change in 2 variables listed below following an increase in taxes and contractionary monetary policy. Compare them with the case when both contractionary fiscal policy and contractionary
1. Output:
2. The interest rate:
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