Exhibit: IS-LM Fiscal Policy Based on the Graph, Starting

question 86

Multiple Choice

Exhibit: IS-LM Fiscal Policy Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, a tax cut would generate the new equilibrium combination of interest rate and income:

• A)r₂, Y_2.
• B)r₃, Y_2.
• C)r₂, Y_3.
• D)r₃, Y_3.

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Definitions:

After-tax Earnings

The net income a company generates after all taxes have been deducted from gross earnings.

Physical Reductions

Decreases in the quantity or physical state of assets, often associated with inventory or fixed assets through use, wear, and tear.

FIFO Costing

FIFO Costing, or First-In, First-Out costing, is an inventory valuation method where goods first purchased or produced are the first ones sold.

Pretax Income

The amount of income earned by a business before taxes have been deducted, also known as earnings before taxes (EBT).