Suppose this economy is in long-run equilibrium, as shown in the graph. Consider an exogenous decrease in government expenditures. Individuals are present-biased and do not take this reform into account when deciding how much to work. What are the short-run and long-run effects of this fiscal reform? Explain your answer. Interest FE line rate, r XM curve IS curve Output, Y
Suppose this economy is in long-run equilibrium, as shown in the graph. Consider an exogenous decrease in government expenditures. Individuals are present-biased and do not take this reform into account when deciding how much to work. What are the short-run and long-run effects of this fiscal reform? Explain your answer. Interest FE line rate, r XM curve IS curve Output, Y
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter5: Difficult Cases For The Market And The Role Of Government
Section: Chapter Questions
Problem 14CQ
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