In the IS-LM framework, which of the following situations would occur if the government increases taxes while the central bank reduces the money supply simultaneously?
1
Both IS and LM curves shift to the left, resulting in lower output and higher interest rates.
2
The IS curve shifts to the right and LM to the left, causing interest rates to fall.
3
Both IS and LM curves shift to the right, leading to higher output and lower interest rates.
4
The IS curve shifts left while the LM curve shifts right, resulting in a decrease in output with lower interest rates.