Essay
a. Suppose Congress passes legislation that significantly reduces taxes. Use the Keynesian- cross madel to illustrate graphically the impact of a reduction in taxes on the equilibrium level of income. Be sure to label:
i. the axes
ii. the curves
iii. the initial equilibrivm values
iv. the direction the curve shifts
v. the terminal equilibrium values.
b. Explain in words what happens to equilibrium income as a result of the tax cut and the time horizon appropriate for this analysis.
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b. The equilibrium level ...
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