According to the Model a Permanent Decrease in Government Purchases

question 4

Multiple Choice

According to the model a permanent decrease in government purchases does not decrease the real interest rate according to the market clearing model because:

• A)the supply of capital services and demand for capital services decrease about the same amount.
• B)neither demand for capital services nor supply of capital services shift due to the permanent increase in government purchases.
• C)the demand for capital services is downward sloping.
• D)the supply of capital services is upward sloping.