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Homework answers / question archive / In the context of the IS LM model, suppose an economy in which the economic authorities carry out a contractionary fiscal policy

In the context of the IS LM model, suppose an economy in which the economic authorities carry out a contractionary fiscal policy

Economics

In the context of the IS LM model, suppose an economy in which the economic authorities carry out a contractionary fiscal policy. In view of this policy, the following is observed:

- A decrease in GDP.
- A decrease in investment.

What can explain the behavior of these variables?

A. Given the contractionary fiscal policy, the central bank simultaneously carried out a sale of bonds in the open market.

B. The economy is not in the liquidity trap.

C. The central bank does not have an interest rate target.

D. All options.

Option 1

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