If government purchases decrease, in the short run
A)consumption will increase as income increases.
B)consumption, investment, and net exports will increase as income increases.
C)consumption and investment will increase as income increases.
D)consumption will fall and net exports will increase as income falls.
E)consumption will increase, and real GDP will remain at potential GDP.

Question

Quizplus · Accepted Answer

If government purchases decrease, this will shift the aggregate demand curve to the left. As a result, consumption and investment will fall, causing a decrease in real GDP. Additionally, the decrease in government purchases may lead to a decrease in imports, which would increase net exports. Therefore, in the short run, consumption will fall and net exports will increase as income falls.

If Government Purchases Decrease, in the Short Run