Two Identical Countries, Alpha and Beta, Can Be Described by the IS-LM

question 15

Essay

Two identical countries, Alpha and Beta, can be described by the IS-LM model in the short run. The governments of both countries cut taxes by the same amount. The Central Bank of Alpha follows a policy of holding a constant money supply. The Central Bank of Beta follows a policy of holding a constant interest rate. Compare the impact of the tax cut on income and interest rates in the two countries.

---

Definitions:

Journal Entries

Written records of all the financial transactions of a business, which are then used to prepare financial statements.

Debits Equals Credits

A fundamental principle of accounting stating that for every transaction, the total debits must equal the total credits in a double-entry bookkeeping system.

Posting Reference Notation

A symbol, number, or letter added to ledger entries to identify the source document or journal where the transaction was first recorded.

Ledger

A comprehensive collection of accounts that records all financial transactions of a business, organized to show the financial status and activities.