According to the market clearing model, a one-unit temporary decrease in government purchases causes:

Question

Quizplus · Accepted Answer

In the market clearing model, a temporary decrease in government purchases leads to no change in GDP because the decrease is offset by an increase in private sector activity. Investment rises as the decrease in government spending frees up resources, and the interest rate remains unchanged as the market clears.

According to the Market Clearing Model, a One-Unit Temporary Decrease