In a closed economy, fiscal authorities are deciding between the two following alternative policies: Policy A Increase government expenditure in 1000 million euros. Policy B: Decrease taxes in 1000 million euros. Both policies will increase the interest rate in the medium run, but the increase of i caused by policy A is larger than the increase caused by policy B.
In a closed economy, fiscal authorities are deciding between the two following alternative policies: Policy A Increase government expenditure in 1000 million euros. Policy B: Decrease taxes in 1000 million euros. Both policies will increase the interest rate in the medium run, but the increase of i caused by policy A is larger than the increase caused by policy B.
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 5SQP
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In a closed economy, fiscal authorities are deciding between the two following alternative policies:
Policy A Increase government expenditure in 1000 million euros. Policy B: Decrease taxes in 1000 million euros. Both policies will increase the interest rate in the medium run, but the increase of i
caused by policy A is larger than the increase caused by policy B.
T/F
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