AS-AD model:
Which one is the correct?
When gov. reduces deficits by increasing taxes…
- in the short run, output decreases, and in the medium run, output Returns to potential
- in the short run, Government expenditures increase and thus in the medium run, output increases
- in the short run, interest rate is higher, and in the medium run, the effect of consolidation Policy on Investment is not clear
- in the short run, IS curve shifts inward to the left and in the medium run, it shifts back to its original Position due to increase in investment
