What happens to consumption and investment in the medium run

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Knappland is at Y = Yn , ue = uen , and P = Pe. President Ewe is concerned about the upcoming election. He pushes tax cuts through the legislature.

a. Use the AS-AD to illustrate the effects of the income tax cut on the locations of the AD, AS, IS, and LM curves and output, prices, the interest rate, and unemployment in the short-run.

b. What happens to output, prices, the interest rate, and unemployment in the medium run? Illustrate.

c. What happens to consumption and investment in the medium run?

Reference no: EM13234877

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