The long-run effect of a decrease in government purchases is represented by a rightward shift of the aggregate demand curve as interest rates decline and spending increases.

Question

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The long-run effect of a decrease in government purchases is represented by a leftward shift of the aggregate demand curve as the economy adjusts to lower output, lower employment, and lower prices. Interest rates may decline in the short run, but in the long run they will adjust to reflect the lower level of output and investment.

The Long-Run Effect of a Decrease in Government Purchases Is