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Keynesian income-expenditure model

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Reference no: EM131893474

Consider an economy in recession with a high rate of unemployment. Using the Keynesian income-expenditure model (or multiplier model), show how an expansionary fiscal policy can bring about economic recovery and reduce the unemployment rate. Explain why this policy will not crowd-out private sector investment. Now, suppose the expansionary policy leads to a trade deficit. How would you modify the policy to prevent a persistent trade deficit?

Reference no: EM131893474

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