(1)Md=kPY, because the decline of money demand Md, that is, the decline of K, is equivalent to the increase of circulation speed V. Because money supply is exogenous, according to MV=PY, it can be concluded that the price level P rises. The nominal amount of money m remains unchanged, while the real amount of money M/P decreases.

(2) In order to keep the price level P stable, the central bank needs to reduce the money supply m. Specific measures: a. Increase the deposit reserve ratio RRR；; ;

B. Increasing the rediscount rate C. The first three kinds of liquidity recovery in open market operations are commonly used. Other means include credit control, so I won't go into details.

two

My views on this issue are somewhat different from those downstairs. First of all, in your question, you emphasize that "the supply of labor and capital will remain unchanged in the short term", so the "increase or decrease of labor supply" downstairs contradicts the topic.

1. In the first year, according to the new Keynesian school, government tax reduction will increase output Y, interest rate I, private investment I, disposable income Yd, consumption C, labor demand and balanced employment rate.

In the second year, if the government increases taxes, according to the viewpoint of the new Keynesian school, it will reduce output Y, interest rate I, private investment, disposable income Yd, consumption C, labor demand and balanced employment rate.

2. However, the above analysis may not be correct. According to robert barro's analytical framework, there will be changes after introducing Barrow-Ricardo equivalence theorem. Mainly reflected in a. The increase or decrease of taxes seems to have little effect on output, because people expect that taxes will increase in the future, so their disposable income will not increase after discounting, so their consumption will not increase. B. Tax reduction will not crowd out private investment, because the reduction of tax rate will increase the rate of return and lead to the increase of investment I.

I hope it helps you.