Jaxmania is a closed economy with government. Aggregate demand is described by , where denotes aggregate consumption, denotes invesiment and denotes government expenditure. Disposable income is denoted by ; income in Taxmania is taxed at a rate , while the government can also deduct taxes as a lump . In particular:

(a) Explain briefly what the IS curve represents and find its equation for Iaxmania (b) Find the multiplier for Jaxmania and explain its meaning. What does it depend on? (c) The central bank of Jaxmania targets the real interest rate and has set . Use the IS-LM framework to find the level of output in the economy. Show that Jaxmania has a balanced budget. (d) Due to the coronavirus pandemic the government of Jaxmania increases expenditure on healthcare and vaccinations, raising government spending to 560. What is the effect of this on aggregate spending in the economy? Show that Taxmania is nowi running a budget deficit. (e) Concerned about debt, the government of Jaxmania decides to raise taxes. This can be done by either (i) raising the income tax rate or (ii) introducing a lump sum . Under which tax system vill fiscal policy through be more effective?