Actions Of The Government And The Increase In Prices

Part I of Essay
The United States economy is currently producing at a level of full employment in long-run equilibrium. The government then decides to increase taxes and to reduce government spending in an effort to balance the budget. The results of the actions taken by the government ....

Part II of Essay
.... and the level of consumer spending rises. The fall in prices causes business to become less profitable and producers decrease the level of production. This results in the decrease of the aggregate quantity supplied to decrease. This continues until aggregate quantity demanded equal the aggregate quantity supplied and a period of short- run equilibrium is established. The real GDP and the price level have both decreased from the original long-run equilibrium level and the economy is operating under the full employment level. At this point ....