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Assume that the economy starts in macroeconomic equilibrium, i.e. AE=Y. Consider the effect of the following changes on the equilibrium GDP : (1) Households decrease
Assume that the economy starts in macroeconomic equilibrium, i.e. AE=Y. Consider the effect of the following changes on the equilibrium GDP : (1) Households decrease their consumption. (2) Firms become pessimistic about the future. (3) Congress passes the bill on defense spending increases. (4) There is a recession in Canada (hint: keep in mind that Canada is our biggest trading partner). (5) Firms' cash flow increases.
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