The economic policies of President Ronald Reagan in the early 1980s, aka the Reaganomics, present some fascinating debates in macroeconomics. The President was attempting a tax cut revolution while the Federal Reserve, under Chairman Paul Volcker, was attempting to control inflation.

(a) President Reagan's tax policies were a crucial part of his economic plan. The most important policy tool was a massive tax cut (30 percent in three years). Use an IS-LM diagram to show how tax cuts would affect the economy. Assume that monetary policy does not change in this question.

(b) Now say that President Reagan's fiscal policies were expansionary while Volcker's monetary policy was contractionary. How would these two contemporaneous policies be represented in a single IS-LM diagram? Explain your diagram. Can you say anything definitive about how output and interest rates would change?