In explaining the 2003 bill to cut taxes, President Bush is quoted as saying, "When people have more money, they can spend it on goods and services."

a. In the $I S - L M$ model, will a tax cut change the money supply in the economy? Does a change in the money supply shift the $I S$ or the $L M$ curve?
b. In the $I S - L M$ model, does a tax cut shitt the $I S$ or the $L M$ curve?
c. Based on your answers in a and b, how can you reconcile the president's statement with economics? Can you suggest how his statement could be modified to be consistent with the $I S - L M$ model?

Question

In explaining the 2003 bill to cut taxes, President Bush is quoted as saying, "When people have more money, they can spend it on goods and services."

a. In the $I S - L M$ model, will a tax cut change the money supply in the economy? Does a change in the money supply shift the $I S$ or the $L M$ curve?
b. In the $I S - L M$ model, does a tax cut shitt the $I S$ or the $L M$ curve?
c. Based on your answers in a and b, how can you reconcile the president's statement with economics? Can you suggest how his statement could be modified to be consistent with the $I S - L M$ model?

Quizplus · Accepted Answer

The Answer of In explaining the 2003 bill to cut taxes, President Bush is quoted as saying, "When people have more money, they can spend it on goods and services."

a. In the $I S - L M$ model, will a tax cut change the money supply in the economy? Does a change in the money supply shift the $I S$ or the $L M$ curve?
b. In the $I S - L M$ model, does a tax cut shitt the $I S$ or the $L M$ curve?
c. Based on your answers in a and b, how can you reconcile the president's statement with economics? Can you suggest how his statement could be modified to be consistent with the $I S - L M$ model?

In Explaining the 2003 Bill to Cut Taxes, President Bush IS−LMI S - L MIS−LM

In Explaining the 2003 Bill to Cut Taxes, President Bush $I S - L M$