Final answer:
The degree of capital mobility affects a nation's balance of payments and equilibrium income level following a reduction in government spending with a fixed exchange rate.
Step-by-step explanation:
The degree of capital mobility is a crucial determinant of the initial effects on a nation's balance of payment and its equilibrium income level following a reduction in government spending with a fixed exchange rate. When capital is highly mobile, investors can easily move their money in and out of a country in response to changes in government spending. If a country reduces government spending, it may result in a decrease in the domestic interest rate, making it less attractive for investors. This can lead to capital outflows, a decrease in the nation's currency value, and a worsening of the balance of payments.