If government purchases decline, during the medium run consumption will be below its baseline level while net exports and investment will be above their baseline levels.

Question

Quizplus · Accepted Answer

In the medium run, a decline in government purchases can lead to lower aggregate demand, reducing consumption. However, lower interest rates may stimulate investment and a weaker currency can boost net exports, both rising above baseline levels.

If Government Purchases Decline, During the Medium Run Consumption Will