Other things equal, a decrease in government spending:

Question

Quizplus · Accepted Answer

Decreasing government spending decreases aggregate expenditures, as it implies a decrease in government purchases and transfer payments to individuals and firms. This, in turn, reduces the overall level of economic output and leads to a reduction in the equilibrium level of GDP. It does not affect the slope of the aggregate demand curve, the domestic interest rate, or shift the aggregate demand curve to the right.

Other Things Equal, a Decrease in Government Spending