Assume that instead of waiting for the long-run adjustment, the government of Gee is considering using fiscal policy to address


assume that instead of waiting for the long-run adjustment, the government of Gee is considering using fiscal policy to address the inflationary gap of $50 billion. (i) If the government chooses to decrease its deficit spending, calculate the minimum change in government spending required to decrease aggregate demand by the amount of the inflationary gap. Show your work. (ii) How will the effect of the government’s action in part (c)(i) be represented in the Phillips curve model? Explain​


Leave a Reply

Your email address will not be published.