For the following changes in economic policy, explain how the growth rate and the level of output in the future would be affected. Distinguish between short-run effects and long-term effects.

a. The government announces a policy aimed at balancing the government budget that amounts to a permanent reduction in public deficits (see Chapter 7 for a more extensive treatment of fiscal policy).

b. The government decides a massive investment in fundamental research that increases AN. However, during the same period, the country experiences a \(1 \%\) drop in the labor force.