In an open economy with constant prices, a decrease in government expenditure would:
A) reduce aggregate expenditure, and shift the AD curve to the left and reduce equilibrium GDP.
B) decrease aggregate expenditure, and shift the AD curve to the right and lower equilibrium GDP.
C) decrease aggregate expenditure, and shift the AD curve to the left and raise equilibrium GDP.
D) reduce aggregate expenditure, and shift the AD curve to reach equilibrium at potential GDP.
Correct Answer:
Verified
Q88: Example 7.1
Y=C+I+G
Consumption: C = 40 + .8Y
Investment
Q89: Example 7.2
Y=C+I+G+X-Z
Consumption C = 25 + 0.8(Y
Q90: Example 7.2
Y=C+I+G+X-Z
Consumption C = 25 + 0.8(Y
Q91: Example 7.2
Y=C+I+G+X-Z
Consumption C = 25 + 0.8(Y
Q92: Example 7.2
Y=C+I+G+X-Z
Consumption C = 25 + 0.8(Y
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