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Use the IS/LM model to analyse a decrease in government purchases. What effect will this policy have on the economy? Use graphs to substantiate your
Use the IS/LM model to analyse a decrease in government purchases. What
effect will this policy have on the economy? Use graphs to substantiate your
explanation.
1. What does the effect depend on? (2 points)
2. Analyse the case, if (6 points each)
i. Money supply is held constant
ii. Interest rate is held constant
iii. short-tun output is constant,
Y t = 0
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