Assume the classical model for a closed economy. Which of the following statements or graphs correctly indicates the long-run effect of contractionary fiscal policy? a. Investment expenditure rises. b. National saving declines. c. Output declines. d. r S₂ S1 r2 r1 I(r) 12 IL I,S

MACROECONOMICS
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Author:Baumol
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Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
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Assume the classical model for a closed economy. Which of the following statements or graphs correctly indicates the long-run effect of contractionary fiscal policy?
a. Investment expenditure rises.
b. National saving declines.
c. Output declines.
d.
r
S₂
S1
r2
r1
I(r)
12
IL
I,S
Transcribed Image Text:Assume the classical model for a closed economy. Which of the following statements or graphs correctly indicates the long-run effect of contractionary fiscal policy? a. Investment expenditure rises. b. National saving declines. c. Output declines. d. r S₂ S1 r2 r1 I(r) 12 IL I,S
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