Draw a diagram (similar to the following figure in this chapter) illustrating the impact of a decrease in government purchases. Assume the government is running a budget deficit both before and after the change in government purchases. On your diagram, identify distances that represent:
a. The decrease in government purchases
b. The increase in consumption spending
c. The increase in planned investment spending

Transcribed Image Text:

Interest Total Supply of Funds (Saving) Rate 7% 5% AH = Gt P + G2 - T P + Gi -T Trillions of 1.75 2.05 2.25 Dollars per Year