Analyze the SR and LR impact of a rise in Taxes (T) on the economy. Note that higher Taxes affect disposable income. Assume that the economy starts in General Equilibrium.   1. Now show the impact of the fall in optimism on the IS-LM diagram and the AD-AS diagram BOTH in SR and LR. No discussion. Clearly show & label the SR impact and the LR impact in both diagrams. 2. Now use the "time diagrams", to show the impact of this shock over time on the following 2 variables: real interest rate (r) and real money demand.

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