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Aggressively expansionary fiscal policy

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Reference no: EM131470070

Suppose that President Trump institutes an aggressively expansionary fiscal policy, cutting taxes and raising government expenditures. Assume that (1) there is an accelerationist Phillips curve, and that (2) sooner or later the Fed will act to stop any change in inflation. Describe what will happen to the real interest rate, the inflation rate, and income in the short run and the medium run. What will happen to the composition of aggregate expenditures in the medium run?

Reference no: EM131470070

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