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LM AS AD -. Y=Y(1G,T) Consider an ASAD equilibrium at some point A. Assume at this initial equilibriunl, P = F. {a} [ll] points} Suppose

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LM AS AD -. Y=Y(1G,T) Consider an ASAD equilibrium at some point A. Assume at this initial equilibriunl, P = F\". {a} [ll] points} Suppose the gmrernment decides to decrease tax {T}. Draw the Short Run Equilibrimn effects Of this policy using bath ISLM and ASAD model. Circle the right changes for each variable listed below when you compare them with the case when there was he pulley. Briey explain what happens to the investment in the SR. (L'learlur label all axis and equilibriums. White your answers on the nezt page. 1. Output: Increase / Decrease / Same / Ambiguous 2. Prices: Increase / Decrease / Same / Ambiguous 3. Interest rate: Increase / Decrease / Same / Ambiguous 4. Investment: Increase / Decrease / Same / Ambiguous(b) (5 points) Using the graph of the AS-AD model only, show how we move from the SR-EQ outlined in part (a) to the MR-EQ. Please answer this question on a separate graph using the format below. If you shift either the AS or the AD curve, briefly explain why. (c) (5 points) Is a decrease in tax a neutral policy in the MR? Explain for full credit

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