In the market clearing model a permanent decrease in government purchase will:

Question

Quizplus · Accepted Answer

A permanent decrease in government purchases will free up resources that can then be used for consumption, leading to an increase in consumption. This is because with less government spending, there's less competition for resources, which can lower interest rates and increase the availability of income for consumers to spend, thus increasing consumption.

In the Market Clearing Model a Permanent Decrease in Government