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Suppose a developed nation's economy is sliding into a recession with inflation. To help mitigate the effects of the recession, fiscal policymakers decide to reduce
Suppose a developed nation's economy is sliding into a recession with inflation. To help mitigate the effects of the recession, fiscal policymakers decide to reduce taxes. As has been its policy for several decades, the Federal Reserve will take action only if inflation appears. Using the language of the AD/AS model, describe what should happen to inflation and real GDP in the short run and long run, given only the information in this question.
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