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Unformatted text preview: Y = C a + I a + G a d) What are the implications for the (closed) economy in the long run of this reduction in this specific type of aggregate expenditure? e) Now repeat this analysis for an open economy. Is there still a cost associated with the permanent increase in G? Explain. f) Explain, in words, why an increase in government purchases may be desirable in the short run, approximately neutral in the long run, and possibly undesirable for the economy in the very long run. g) For (e) and (f), does it matter what the increase in government spending is for? For example, are the long-run costs of an increase in government spending on education likely to be the same as an increase in government spending on the construction of buildings? Explain. B. Chapter 24, Study Exercises 3 and 7 C: Chapter 24, Discussion Questions 2 to 6...
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This note was uploaded on 02/14/2011 for the course ECON 209 taught by Professor Mattieuprovencher during the Spring '09 term at McGill.
- Spring '09
- Fiscal Policy