Suppose that output and employment increased because of a sectoral shock. A macroeconomist suggests that, since aggregate output and employment have gone up, the government should reduce expenditures on goods and services to dampen the increase in both output and employment.

a. Determine, using diagrams, what the net effects on output, employment, consumption, investment, the real interest rate, and the real wage would be of such a policy, combined with the sectoral shock.

b. Do you think such a policy is appropriate? Why or why not?