Question about is-lm model

Reference no: EM1373820

Suppose that the economy is at full employment and government make decision to cut taxes to give the economy an extra boost.

PLEASE DO NOT SUBMIT A RESPONSE UNLESS YOU TRULY UNDERSTAND THE IS-LM MODEL (I've gotten some bad answers/explanations on this).

[A] Demonstrate the short run effect of this tax cut using the IS-LM model [MUST draw the chart and show the IS and LM curves and MUST explain how you came to your conclusion].

[B] What will happen to output and the interest rate and why?

[C] What will happen in the long run?

[D] If the Federal Reserve is following a policy of price stability, how should they react to the tax increase? If the Fed action is implemented, will the tax cut succeed in boosting output?

Reference no: EM1373820

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