Consider the following short-run model of the goods market Y=C(Y-T)+I+G+CA(EP*/P,Y-T)

a. (12 points) Suppose that the goods market is initially in equilibrium. Consider now a temporary increase in taxes,?. Explain how this change affects aggregate demand and describe the off-equilibrium dynamics, that is, the economic mechanism that underlies the adjustment of output to restore equilibrium in the goods market. (Submit a typed answer, not handwritten. Maximum of 100 words.)

b. (12 points) Consider now two economies, A and B. In economy A consumers save a smaller fraction of each additional dollar they earn compared to consumers in economy B. The two economies are otherwise identical. Using the same initial equilibrium in the goods market for the two economies, explain how the response of output to a given temporary increase in government spending differs in the two economies. (Submit a typed answer, not handwritten. Maximum of 100 words.)