Suppose the current administration decides to decreasegovernment expenditures as a means of cutting theexisting government budget deficit.a. Using a graph of aggregate demand and supply, showthe effects of such a decision on the economy in theshort run. Describe the effects on inflation and output.b. What will be the effect on the real interest rate, theinflation rate, and the output level if the FederalReserve decides to stabilize the inflation rate?

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