Use an IS-LM diagram to show an economy where output is equal to the full-employment value. You may illustrate your answers to parts (a) and (b) in the same figure you upload to the space under Question 6.

a) From this starting point, assume the fiscal authority decides to reduce taxes. Shift the appropriate curve(s) to show the effects of this change.Be sure to label all of the elements of your figure carefully.

b) Now assume that the Fed reacts to the effects of the tax cut with a monetary policy change designed to maintain the interest rate at the constant value where this problem began (the value of the interest rate before the tax cut was made).Shift the appropriate curve(s) in your diagram to show this monetary policy action and then discuss whether the combination of the fiscal and monetary policy changes will lead to an increase, decrease, or no change in output.