Show the short run and medium run effects of the government deciding to decrease taxes while keeping government spending unchanged. Specifically, what happens to output, the nominal interest rate, and the price level in the short run and medium run. In order to receive full credit, you must utilize both the IS-LM and AD-AS graphs. In explaining your answer you must take into account price level effects and thoroughly explain all economic reactions. Does a decrease in T change the composition of the final medium-run equilibrium Y? Please justify your answer.

Answer rating: 100% (QA)

In the short run output and the nominal interest rate will decrease while the price level will incre... View the full answer