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Suppose the U.S. economy is showing early signs of overheating which include indications of inflation. While this is happening, fiscal policymakers decide to cut taxes.
Suppose the U.S. economy is showing early signs of overheating which include indications of inflation. While this is happening, fiscal policymakers decide to cut 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.
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