Explain why the economy always returns to Yf in the new classical model.

Graph to accompany answer
The economy is initially in equilibrium where LRAS = AD = SRAS. Real output is Yf and the average price level is P. If there is a decrease in government spending in the economy, the G component of Aggregate Demand decreases, causing the AD curve to shift left. There is now a new short run equilibrium, where SRAS.1 = AD.1. Real output at this equilibrium is Y.1, and the average price level is P.1. The short run is the period in which costs are fixed. As output has now fallen below the full employment level of output, workers are being underworked. As workers are now producing less, in the long run (where costs are variable), firms may choose to lower the workers' wages. This results in a decrease in costs for firms, causing the SRAS curve to shift to the right. This will continue to happen until workers are no longer being underworked, and output has returned to Yf. The economy hence reaches a new long equilibrium, where AD.1 = LRAS = SRAS.1. Real output is Yf, and the average price level is P.2. Hence, the decrease in government spending has just led to deflation.