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Suppose That the Economy Is Experiencing Inflation and Is Above

Question 73

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Suppose that the economy is experiencing inflation and is above full employment,and the federal government implements an income tax increase as a corrective action.Use the IS-MP model to analyze the effect the tax increase should have on real GDP and the output gap.Show any shifts in the IS curve and the MP curve,and identify the old and new equilibrium values of the output gap.

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Since the economy is originally above fu...

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