Increase, decrease
A small open economy's domestic government reducing back on spending will result in an increase in the real exchange rate and a drop in net exports.
Government spending
Government spending refers to funds used by the public sector for the purchase of products and the delivery of services, including those related to defense, social protection, healthcare, and education. If government spending results in the unemployed finding work, they will have more money to spend, which will increase aggregate demand even more. When the economy has excess capacity, government expenditure may result in a greater final gain in GDP than the initial exposure.
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