Question: Suppose that a treaty is signed limiting armies throughout the world. The result of the treaty is that the public expects military and hence government

Suppose that a treaty is signed limiting armies throughout the world. The result of the treaty is that the public expects military and hence government spending to be reduced. If the new classical view of the economy is correct and government spending does affect the aggregate demand curve, predict what will happen to aggregate output and the price level when government spending is reduced in line with the public’s expectations.

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