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Suppose an economy goes from no liquidity constraint to liquidity constraint. What will happen to fiscal policy power to change the level of income?

I know that the MPC in a liquidity constrained economy is higher which leads to a higher multiplier and more power for fiscal policy. But my confusion occurs because if people are liquidity constrained, wouldn't they consume less and save more since they cannot borrow?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M91232104

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