Suppose the economy is in a boom and spending is thought to be $75 billion above potential GDP.Suppose Congress decides to reduce military spending in an attempt to stabilize the economy.
(A)Show the situation using the aggregate demand curve and the IA line.
(B)What happens to the inflation rate and the interest rate?
(C)According to the long-run growth model in Chapter 19 in your text,what effect would this policy have on economic growth?

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The Answer of Suppose the economy is in a boom and spending is thought to be $75 billion above potential GDP.Suppose Congress decides to reduce military spending in an attempt to stabilize the economy.
(A)Show the situation using the aggregate demand curve and the IA line.
(B)What happens to the inflation rate and the interest rate?
(C)According to the long-run growth model in Chapter 19 in your text,what effect would this policy have on economic growth?

Suppose the Economy Is in a Boom and Spending Is