A Suppose a Government Moves to Reduce a Budget

Essay

a. Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of reducing a
goverment's budget deficit by reducing government purchases. Be sure fo label:
i. the axes
ii. the curves
iii. the inifial equilibrium values
iv. the direction curves shiff
v. theterminal equilibrium values

b. State in words what happens to:
i. the real interest rate
ii. national saving
iii. investment
iv.consumption
v. output.