Question: Analyzing macroeconomic events with the IS curve (II): Consider the following changes in the macroeconomy. Show how to think about them using the IS curve, and explain how and why GDP is affected in the short run.
(a) The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income.
(b) A booming economy in Europe this year leads to an unexpected increase in the demand by European consumers for U.S. goods.
(c) U.S. consumers develop an infatuation with all things made in New Zealand and sharply increase their imports from that country.
(d) A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.