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Explain the effect of an increase in income tax on the equilibrium output and inflation in the AD-AS model . Carefully distinguish between the short-run
- Explain the effect of an increase in income tax on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short-run and the long-run equilibrium. Would this increase in income tax affect the potential output? Why/Why not?
- Suppose the Central Bank of a country increases its target rate of inflation. For example, instead a target of 2-3%, it sets new target of 4% inflation. Explain the effect of this change on the interest rate setting on the policy reaction function and the Aggregate Demand.
- An increase in population will lead to economic growth. Explain, in detail, whether you agree or disagree with this statement
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