In the flexible-price model, a decrease in government purchases will result in

Name: In the flexible-price model, a decrease in government purchases will result in
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In the flexible-price model, a decrease in government purchases reduces the interest rate, which in turn increases investment spending as borrowing costs are lower. This model assumes prices adjust to ensure supply equals demand, so the effects are through changes in interest rates rather than changes in output or savings directly.

In the Flexible-Price Model, a Decrease in Government Purchases Will