Question: Suppose the current administration decides to decrease government expenditures as a means to cut the existing government budget deficit. a. Using a graph of aggregate

Suppose the current administration decides to decrease government expenditures as a means to cut the existing government budget deficit.

a. Using a graph of aggregate demand and supply, show what the effect would be in the short run.

Describe the effects on inflation and output.

b. What would be the effect on the real interest rate, inflation rate, and output level if the Federal Reserve decides to stabilize the inflation rate?

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