Question
Asked Feb 29, 2020
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If the president and parliament agree on a policy to increase the budget deficit by increasing government expenditure while holding taxes constant:

1. What impact will this expansionary fiscal policy have on output and interest rates?

2. Is the shift an IS or LM or both

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Expert Answer

Step 1

If the government decides to increase its expenditure:

1) This expansionary fiscal policy of increasing government expenditure would increase the purchasing power in the hands of consumers. Hence, the demand for goods will in...

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