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 long run. b. What happens to output, the interest rate, and the price level in the long run? What happens to consumption and investment in the short and long run?

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 long run. b. What happens to output, the interest rate, and the price level in the long run? What happens to consumption and investment in the short and long run?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter10: Keynesian Macroeconomics And Economic Instability: A Critique Of The Self Regulating Economy

Section: Chapter Questions

Problem 20QP

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