For the following event, explain the short run and long run effects on output, price level, interest rate, exchange rate assuming policymakers take no action. Also, explain what happens when the Central Bank maintains a fixed exchange rate.

Event: the federal government increases spending on national defense.

For the above event, describe the situation of the economy in the short run. Describe the adjustment to the long run equilibrium if the government does nothing. Explain thoroughly with words + graphs.For the following event, explain the short run and long run effects on output, price level, interest rate, exchange rate assuming policymakers take no action. Also, explain what happens when the Central Bank maintains a fixed exchange rate.

Event: the federal government increases spending on national defense.

For the above event, describe the situation of the economy in the short run. Describe the adjustment to the long run equilibrium if the government does nothing. Explain thoroughly with words + graphs.