(Answered) Suppose the economy begins at full employment an increase

Management Studies

Suppose the economy begins at full employment, "An increase in personal income taxes shocks," use aggregate demand and aggregate supply analysis to:

a. Analyze the short-run impact: begin by saying what causes the curve to shift. Explain what happens to inflation, real interest rates, exchange rates, consumption, investment and net exports and output.

Use the AS-AD graph to illustrate and please explain why the variables changes as you have indicated.

b. Discuss the long-run impact of the shock after the economy self-adjusts. Illustrate with the graph and explain why output returns to potential.

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