The government of a closed economy is seeking proposals on how income taxes should be conducted.

Currently, there are three proposals have been submitted, and they are:

Proposal 1: Use the policy to target real output

Proposal 2: Use the policy to target real interest rate

Proposal 3: Use the policy to target price level

Recently, the government has lowered the contribution limits of the registered retirement savings plan

(RRSP). The government asks you to do the followings:

Evaluate the effect of this change in RRSP contribution limit on the short-run equilibrium level

of national savings under these three different proposals.

Rank the change in national savings in ascending order (i.e., from smallest change to largest

change) in the above three proposals.

Explain and support your answer by ONE IS-LM diagram (only the first diagram will be graded).