A tax cut Because consumers save (1-MPC)of the tax cut LM the initial boost in spending is smaller forAT than for an equal△G and the is curve shifts by -MPC IS2 △7 1-MPC 2.)… so the effects on r and y are smaller for a△ T than for an equa△G CHAPTER 11 Aggregate Demand Il slide 4CHAPTER 11 Aggregate Demand II slide 4 IS1 1. A tax cut Y r LM r1 Y1 IS2 Y2 r2 Because consumers save (1−MPC) of the tax cut, the initial boost in spending is smaller for T than for an equal G… and the IS curve shifts by MPC 1 MPC T −  − 1. 2. …so the effects on 2. r and Y are smaller for a T than for an equal G. 2