Germany is one of the most advanced nations in the world, and one of the nations in Europe that has been severely affected by the Covid-19 pandemic. It has approved relief packages to ease the economic hardship. Now, that the population is getting vaccinated economic analysts are forecasting an increase in income taxes for the 2022 fiscal exercise if the economy rebounds.

a. Can you explain the economic consequences of increasing the income tax? Explain effects on consumption, and use the AD model (Keynesian cross) to explain the impact of this measure on national income. Use models and graphs. Explain

b. How does this measure affect the loanable funds model? Explain and use the model to support your answer, draw graphs, use the math. Describe effects on National Savings, investment, interest rate. Explain in deep. Why do you think the policymakers might implement this measure?