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Initially, the economy is in steady state. Suppose there is a change in tax policy such that the government reduces the sales tax rate. 1)
Initially, the economy is in steady state. Suppose there is a change in tax policy such that the government reduces the sales tax rate. 1) In the context of the long-run classical model, what happens to the long-run equilibrium levels of investment and real interest rate? What happens to the real wage? Explain and support your answer with at least two diagrams: one for the market for loanable funds and one for the labour market.
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