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Describe the Effects of Contractionary Fiscal Policy by the Domestic

question 45

Essay

Describe the effects of contractionary fiscal policy by the domestic government on output,the real interest rate,and net exports in both the domestic and foreign country,using a Keynesian model.


Definitions:

Marginal Cost

The increase in costs from making an additional unit of a product or service.

Long-Run Equilibrium

A state in economics where all factors of production are fully adjustable, leading to a situation where no economic agent has an incentive to change its behavior.

Monopolistic Competition

A marketplace setup in which a wide range of companies vend products that are comparable but not clones, enabling some level of market sway.

Profit Maximization

The process by which a firm determines the price and output level that returns the greatest profit.

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