Discuss implications of policy in short-run and in long-run

Reference no: EM133538265

Assignment:

Take an economy that has its output equal to its natural level but is facing a fiscal budget deficit. The fiscal authority plans to lower government purchases to reduce the deficit. The central bank wants to maintain output at the full-employment level. Explain what the central bank can do to stabilize output. Use the Keynesian Cross, IS-LM, and AS-AD models to explain your work in words and in figures.

Assuming that prices are perfectly sticky in the short-run, discuss the implications of policy in the short-run and in the long-run.

Reference no: EM133538265

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