In the Keynesian model in the short run, what is likely to happen to employment after each of the following shocks?
(a) An increase in taxes
(b) An increase in consumer spending generated by a reduced desire for saving
(c) An increase in the money supply
(a) The increase in taxes shifts the IS curve to the left, reducing output in the short run and thus employment, based on the effective labor demand curve.
(b) The increase in consumer spending shifts the IS curve to the right, increasing output in the short run and thus employment, based on the effective labor demand curve.
(c) The increase in the money supply shifts the LM curve to the right, increasing output in the short run and thus employment, based on the effective labor demand curve.
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