Re: Macro question

Posted by ViV on Apr 22, 2014; 10:27am
URL: http://discussion-forum.276.s1.nabble.com/Macro-question-tp7587597p7587600.html

Option (a) can't be the answer because this will affect LM Curve.
Option (b) is not the answer this you will get to know after reading the explanation of option (c)
Option (c)
IS : C+I+G-T
Y' = 100 let T = 10 (Lump-sum Tax)
Y'' = 105 let T = 5 (fall in T)
So Income increases IS curve shifts right and corresponding to this rate of interest increases and crowding out takes place.