Consider two alternative programs for contraction. One is the removal of an investment subsidy; the other is a rise in income tax rates. Use the IS-LM model and the investment schedule, as shown in Figure 12-9 , to discuss the impact of these alternative policies on income, interest rates, and investment.

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AT Investment (a) Interest rate AT Investment (a) Interest rate

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IS curve showing inverse relation between interest and output It is showing goods market in equilibr... View the full answer