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.

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