Government offers a temporary tax credit

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Reference no: EM13975069

For each of the following changes in the macro-economy, show how to think about them using the IS curve, and explain how GDP is affected in the short-run.

a) The government offers a temporary tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income.

b) A booming economy in Asia this year leads to an unexpected increase of the demand of Asian consumers for US goods.

c) US consumers suddenly appreciate French products and sharply increase their imports from that country.

d) A housing bubble bursts, so that housing prices fall by 20 percent and new home sales drop sharply.

Reference no: EM13975069

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