Effects on inflation and real gdp that these policies will/ Macroeconomics
Assume the economy initially is in a long run equilibrium plus the following: the U.S. dollar is relatively strong against all major foreign currencies. Suppose the Congress and the President decide to decrease government spending dramatically on all federal programs. Meanwhile, the G-7 has unanimously decided to help U.S. exports to western Europe. At the same time, the Fed’s policy is to prevent inflation from increasing beyond its current rate. Using the AD/AS model, briefly explain the short-run and long-run effects on inflation and real GDP that these policies will have.
