In the Keynesian model in the short run,a decrease in government purchases causes output to ________ and the real interest rate to ________.
A)fall; rise
B)fall; fall
C)rise; rise
D)rise; fall

Question

Quizplus · Accepted Answer

In the Keynesian model, a decrease in government purchases reduces aggregate demand, leading to a decrease in output. This decrease in demand for funds also leads to a decrease in the real interest rate as there is less competition for borrowing.

In the Keynesian Model in the Short Run,a Decrease in Government