On a short-run macro model diagram,the impact of a decrease in government purchases (G)is illustrated by

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With a decrease in government purchases (G), there is a decrease in aggregate expenditure as government spending is a component of aggregate expenditure. Therefore, the aggregate expenditure line will shift downward. However, the magnitude of the shift will be less than the decrease in G because there is a multiplier effect on the economy. This multiplier effect means that the decrease in G will lead to a larger decrease in overall spending and therefore a smaller decrease in real GDP. Thus, the aggregate expenditure line will shift downward by an amount less than the change in G.

On a Short-Run Macro Model Diagram,the Impact of a Decrease