At the beginning of the Reagan
presidency, the President proposed a substantial tax cut
and suggested that this policy would attack the very high
levels of inflation. From the point of view of the ISLM
model, this policy seemed:
well-advised because a tax cut pushes the IS curve to
the left, which reduces inflationary pressures.
well-advised because a tax cut pushes the LM curve to
the left, which reduces inflationary pressures.
poorly-advised because a tax cut
pushes the IS curve to the right, which increases
inflationary pressures.
poorly-advised because a tax cut
pushes the LM curve to the right, which increases
inflationary pressures.
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