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I think 'literary fiction' is an artificial term used to describe books that are taught about in college's. Some are well known classics I imagine while others are newer books that have some perceived merit in the eyes of educators. Genre fiction is more specific. A book might be a Romance or a Western etc. based on the setting and other story elements. If a book is set in the modern day and doesn't stress a setting like a Western or a Historical Romance might then it might also find itself being considered Literary. Such books do have a setting, but the setting isn't as important to the story as it is in a genre book.
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