In Explaining the 2003 Bill to Cut Taxes, President Bush

question 47

Essay

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

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Definitions:

Food

Any nutritious substance that people or animals eat or drink to maintain life and growth.

Conditioned Stimulus

A previously neutral stimulus that, after being paired with an unconditioned stimulus, evokes a conditioned response.

Tone

The quality or character of sound, or in communication, the attitude conveyed by the words and manner of speaking or writing.

Conditioned Stimulus

A previously neutral stimulus that, after becoming associated with the unconditioned stimulus, eventually comes to trigger a conditioned response.