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Effects on inflation and real gdp that these policies will

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Assume the economy initially is in a long run equilibrium plus the following:  the U.S. dollar is relatively strong against all major foreign currencies.  Suppose the Congress and the President decide to decrease government spending dramatically on all federal programs.  Meanwhile, the G-7 has unanimously decided to help U.S. exports to western Europe.  At the same time, the Fed’s policy is to prevent inflation from increasing beyond its current rate.  Using the AD/AS model, briefly explain the short-run and long-run effects on inflation and real GDP that these policies will have.

Reference no: EM13308443

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