Suppose that in a closed economy in which l = Y with Y,=5000,C=500+0.5(Y* T) and T-1000 the government decides to increase taxes ( top) permanently by 500. We know that in the medium-run: 1. S will decrease by 150. 2. S will decrease by 350, 3. S will decrease by 250. 4. S will remain constant in the medium-run.

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