Consider our medium-run model of the economy: Y = C(YT)+I(Y,r+x) +G F=F πtπt-1 = ()(x - Yn) (IS) (LM) (PC) Suppose the economy starts at a point such that Xt = Yn and r = m. a. Graph the effects of a decrease in government spending, G. What happens to output, the interest rate, and inflation in the short-run? b. What happens in the medium-run?

Consider our medium-run model of the economy: Y = C(YT)+I(Y,r+x) +G F=F πtπt-1 = ()(x - Yn) (IS) (LM) (PC) Suppose the economy starts at a point such that Xt = Yn and r = m. a. Graph the effects of a decrease in government spending, G. What happens to output, the interest rate, and inflation in the short-run? b. What happens in the medium-run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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