Problem
Suppose the current administration decides to decrease government expenditures as a means to cut the existing government budget deficit.
a) According to the aggregate demand and supply analysis, what would be the effect of such a measure in the short run? Describe changes in the inflation rate and output level.
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?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.