Question 1) Use the IS-LM model (diagram) to analyze the impact of a fall in capital taxes (i.e. tax on capital stock) in the SR only. Along with your diagram provide a detailed intuitive discussion [as done in lecture] of the impact on the whole economy. Clearly label the diagram to illustrate SR movement.

Question 2) Use the IS-LM model (diagram) to analyze the impact of a rise in Money Supply over time (from SR to LR). Assume that the economy starts in general equilibrium (GE).

a. Show the impact of a rise in Money Supply over time on the IS-LM diagram. Clearly label the diagram to illustrate SR & LR movements and the impacts these have on r and Y in the diagram

b. Provide an intuitive discussion on the impact of the shock on the economy in the SR only.

c. Provide an intuitive discussion of the impact of the shock in the LR only (i.e. discuss what happens over time).

d. Use the time diagrams to show the impact of the shock over time on the following 3 variables: Consumption, real money supply, and the Price Level. [time diagrams have "time" on the x-axis and show the response of a variable from our models over time.]