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Suppose the economy begin at potential output. In the short-run an increase in the budget deficit will lead firms to increase output because the deficit
Suppose the economy begin at potential output. In the short-run an increase in the budget deficit will lead firms to increase output because the deficit raises prices and when wages are sticky, per unit profit decreases the deficit lowers prices giving firms higher profits the deficit creates crowding out Othe deficit raises prices and when wages are sticky, per unit profit increases
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