a. Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of reducing a goverment's budget deficit by reducing government purchases. Be sure fo label: i. the axes ii. the curves iii. the inifial equilibrium values iv. the direction curves shiff v. theterminal equilibrium values

b. State in words what happens to: i. the real interest rate ii. national saving iii. investment iv.consumption v. output.

Question

b. State in words what happens to:  i. the real interest rate ii. national saving iii. investment iv.consumption v. output.

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The Answer of a.  Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of reducing a goverment's budget deficit by reducing government purchases. Be sure fo label:  i. the axes ii. the curves iii. the inifial equilibrium values iv. the direction curves shiff v. theterminal equilibrium values

b. State in words what happens to:  i. the real interest rate ii. national saving iii. investment iv.consumption v. output.

A Suppose a Government Moves to Reduce a Budget