Based on our understanding of the IS- LM model that takes into account dynamics, we know that a decrease in government spending will cause:

Question

Quizplus · Accepted Answer

A decrease in government spending will initially shift the IS curve to the left, leading to a lower equilibrium output (Y) and interest rate (i) as the economy adjusts to the new equilibrium. This adjustment is gradual due to the dynamics of consumption, investment, and other components of aggregate demand responding to the change in government spending.

Based on Our Understanding of the IS- LM Model That