5. A permanent increase in government purchases has a larger effect than a temporary increase of the

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5. “A permanent increase in government purchases has a larger effect than a temporary increase of the same amount.” Use the saving–investment diagram to evaluate this statement, focusing on effects on con sumption, investment, and the real interest rate for a fixed level of output. (Hint: The permanent increase in government purchases implies larger increases in current and future taxes.)

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Macroeconomics

ISBN: 9781292446127

11th Edition

Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore

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