Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit.Based on the IS-LM model,we know with certainty that the following will occur as a result of this fiscal policy action.

Question

Quizplus · Accepted Answer

In the IS-LM model, reducing a budget deficit typically involves decreasing government spending or increasing taxes, which shifts the IS curve leftward. This can lead to lower interest rates, which might increase investment, but the reduced output can decrease investment. Thus, the effect on investment is uncertain.

Suppose Fiscal Policy Makers Implement a Policy to Reduce the Size