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Suppose a government has been running large government deficits. In order to address these deficits, the...

Suppose a government has been running large government deficits. In order to address these deficits, the government has decided to decrease its spending (G) and raise taxes (T). Using the complete Keynesian model, explain in as much detail as possible what will likely happen to the economy (including GDP, the interest rate, investment spending, any multiplier effects). Finally, under what conditions would GDP be less affected (e.g., high or low mpc, steep or flat money demand, steep or flat investment schedule)?

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Rahul Sunny answered 6 months ago
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