IV. Suppose the economy begins with output equal to its natural level. Then, there is a reduction in income taxes. a. Using the AS-AD model, show the effects of a reduction in income taxes on the position of the AD, AS, IS, and LM curves in the short- and medium-run. b. What happens to output, the interest rate, and the price level in the medium run? What happens to consumption and investment in the medium run?

IV. Suppose the economy begins with output equal to its natural level. Then, there is a reduction in income taxes. a. Using the AS-AD model, show the effects of a reduction in income taxes on the position of the AD, AS, IS, and LM curves in the short- and medium-run. b. What happens to output, the interest rate, and the price level in the medium run? What happens to consumption and investment in the medium run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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