4. In the early 1980s President Reagan was attempting a tax cut while the Federal Reserve under Chairman Paul Volcker was attempting to control inflation. Answer the below question considering closed economy in short-run.

4. In the early 1980s President Reagan was attempting a tax out while the Federal Reserve under Chairman Paul Volcker was attempting to control ination. Answer the below question considering closed economy in short-run. [9' points] a) b} Considering President Reagan's tax policy {aggregate 30% tax cut in 3 years) were crucial parts of economic policy, use the IS-LM diagram to show how tax cut would affect the economy and explain in few sentences. Assume that monetary policy does not change. Assume that demand for money is insensitive to interest rate. Now what would be the net effect of President Reagan's tax policy (30% cut in 3 years) in IS-LM framework? Use the IS-LM diagram to show the effect and also explain in few sentences. Now say that President Reagan is following an expansionary scal policy while Voleker's monetary policy is eontractionary. Show this effect in one diagram using IS-LM framework and explain in few sentences. Can you say anything defmitely about the net effect