The IS model implies that a dollar of government spending has a larger impact on equilibrium output than does a dollar of taxes. Explain

What will be an ideal response?

In the IS equation, government purchases are a component of autonomous spending, no different than autonomous consumption, investment, and net exports. From the perspective of producers, a customer is a customer. Taxes, clearly, are not an expenditure. Taxes affect expenditure by reducing disposable income and, thus, consumption. Since only a fraction of disposable income is spent for consumption — a fraction measured as the marginal propensity to consume — each dollar of taxes corresponds to a fraction of a dollar taken from consumption expenditure.