Answer to Question #226564 in Macroeconomics for Sara

Question

Consider two alternative programs for contraction. One is the removal of an investment sub￾sidy; the other is a rise in income tax rates. Use the IS-LM model and the investment subsidy shifts the investment schedule, to discuss the impact of these alternative policies on income,
interest rates, and investment

Answer 1

Removal of Investment subsidy will automatically decrease the interest rate, income and investment. This comes as some of the interest supporting programs will be elevated as income to expand the business will be reduced.