Interpretation of reduction in government spending

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Suppose Congress wishes to reduce the budget deficit by reducing government spending. Use the IS-LM model to illustrate graphically the impact of the reduction in government spending on output and interest rates. (Be sure to label:

i. the axes;

ii. the curves;

iii. the initial equilibrium values;

iv. the direction the curves shift; and

v. the terminal equilibrium values.)

Reference no: EM1313551

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