Question
Analyze the SR and LR impact of a RISE in TAXES (T) on the economy. Assume that the economy starts in General Equilibrium . Recall
Analyze the SR and LR impact of a RISE in TAXES (T) on the economy. Assume that the economy starts in General Equilibrium. Recall that T is a tax on consumer income
a) What is the impact on economic activity in the Short Run (SR) ONLY? Provide a detailed discussion (the impact that includes the effect on Y, r, I, C, and L(i,Y))
b)show the impact of the rise in TAXES in the SR on the IS-LM diagram and the AD-AS diagram
c) the LR prices adjust. Does P rise or fall?
d) How is the adjustment in the Price Level over time illustrated in the IS-LM diagram? Shift in IS or shift in LM?
e) How is the adjustment in the Price Level over time illustrated in the AD-AS diagram? Movement along AD or shift in AD?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started