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15 July, 08:13

Suppose there is a fiscal contraction. Which of the following is a complete list of the variables that must decrease? A) consumption B) consumption and investment C) consumption and output D) consumption, output and the interest rate E) consumption, output and investment

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  1. 15 July, 09:51
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    C) consumption and output

    Explanation:

    A fiscal contraction refers to decreasing a government's deficit. A government has a deficit when it spends more than the revenue it gets from taxes. Therefore if the government wants to reduce its deficit, it will decrease public expenditure and/or increase taxes. Any of those actions will also lead to a decrease in public consumption and total economic output.
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