Answer to Question #304110 in Macroeconomics for roba

Question

Use the Keynesian-cross diagram of desired demand and output to illustrate and explain the impact on the IS curve of a down in taxes

Answer 1

A fall in taxes will shift the IS curve outward from IS₁ to IS₂ shown by the movement from point A to B. This is because a decrease in taxes increases consumption leading to an increase in output.