Suppose this economy is in long-run equilibrium, as shown in the graph. Consider an exogenous decrease in government expenditures. Individuals are present-biased and do not take this reform into account when deciding how much to work. What are the short-run and long-run effects of this fiscal reform? Explain your answer. Interest FE line rate, r XM curve IS curve Output, Y

Suppose this economy is in long-run equilibrium, as shown in the graph. Consider an exogenous decrease in government expenditures. Individuals are present-biased and do not take this reform into account when deciding how much to work. What are the short-run and long-run effects of this fiscal reform? Explain your answer. Interest FE line rate, r XM curve IS curve Output, Y

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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