Suppose Congress decides to reduce the budget deficit by cutting government spending. a. Use the Keynesian-cross model to illustrate graphically the impact of a reduction in government purchases on the equilibrium level of income. Be sure to label: i) the axes; ii) the curves; iii) the initial equilibrium values; iv) the direction the curve shifts; and v) the terminal equilibrium values. b. Explain what happens to equilibrium income as a result of the cut in government spending.

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