Labor Market and Production:

Wage=100-N

Wage=25+2N

Y=A*K^.5N^.5

Goods Market:

C=70+2/3(Y-T)

I=100-400r

G=50

T=50

Asset Market:

MS=245/P

MD=1/2(Y)-100r

Starting at the initial equilibrium. Suppose that for stabilization reasons the government decides to change the lump sum tax from 50 to a progressive tax system where the total tax will be equal to 10% of the output level (T1=0.10*Y). Draw the initial general equilibrium under this new tax regime and show how the decrease in consumption by 25 units will have a different Short Run equilibrium. What is the Short Run equilibrium? You can draw this graphically under the Keynesian assumptions with only the IS/LM/FE model. Make sure to completely label the graph. This should be done on a new graph but include any of the original lines that help to show how the new tax change has changed things.