In the Keynesian model of an open economy,a temporary decrease in government purchases would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.
A)lower; increase
B)lower; decrease
C)raise; increase
D)raise; decrease

Question

Quizplus · Accepted Answer

In the Keynesian model, a temporary decrease in government purchases reduces aggregate demand, leading to a lower domestic real interest rate. This decrease in interest rates encourages saving over investment, thus increasing net desired saving.

In the Keynesian Model of an Open Economy,a Temporary Decrease