President Bush is quoted as saying in explaining the 2003 bill to cut taxes, "When people have more money, they can spend it on goods and services." (4x3=12pt)
1. Does a change in the money supply shift the IS or the LM curve? In the IS-LM model, will a tax cut change the money supply in the economy?
2. Does a tax cut shift the IS or the LM curve in the IS-LM model.
3. How can you reconcile the president's statement with economics based on your answers in a and b? Can you suggest how his statement could be modified to be consistent with the IS-
LM model?