Question 3: Tax Cut Suppose the economy is in the long run equilibrium. The government tries to stimulate the economy by decreasing a lump-sum tax in the current period. 1. Suppcxse consumers are sophisticated (remember the case of sophisticated Robinson we studied in Chapter 4. Assume nobody is borrowing constrained.). What will happen to output and the real interest rate in the short run? Explain using the IS-LM diagram. 2. Instead, consumers are unsophisticated and decide the level of consumption using the follow- ing consumption function: Problem Set C + AIPC(Y T), Econ 2220 - Fall 2022 where C is consumption, is the minimum level of consumption that consumers need, M PC is the marginal propensity to consume (0 < AIPC < 1), Y is output, and T is a lump-sum tax. IVhat will happen to output and the real rate in the short run? Explain using the IS-LM diagram.