According to the Keynesian model, what is the effect of each of the following on output, the real interest rate, employment, and the price level? Distinguish between the short run and the long run. In answering this question, use IS-LM and AD-AS diagrams in the manner of Figures 12.2 and 12.3.
a. Increased tax incentives for investment (the tax breaks for investment are offset by Lump-sum tax increases that keep total current tax collections unchanged).
b. Increased tax incentives for saving (as in part (a), lump-sum tax increases offset the effect on total current tax collections).
c. A wave of investor pessimism about I be future profitability of capital investments.
d. An increase in consumer confidence, as consumers expect that their incomes will be higher in the future.