From 1991 to 2000, the Japanese economy grew so slowly that those years have become known as

Question:

From 1991 to 2000, the Japanese economy grew so slowly that those years have become known as the €œLost Decade.€Nevertheless, the Japanese government increased the national sales tax in 1997 because it had become concerned about its budget deficit. As a result, real GDP decreased by 2.0% in 1998 and 0.1% in 1999. The graph below shows short-run equilibrium in the Japanese economy in 1997 prior to the sales tax increase. The graph assumes that growth had been slow but not negative, so the economy was at or near full employment.

a. Show the effect of the sales tax on an IS€“MP graph.
b. If the primary goal of the government is full employment, was increasing the national sales tax in 1997 a wise policy? Briefly explain.