3 Consider The Aggregate Demand Aggregate Supply Framework Suppose Government Spendi 3345791

3. Consider the Aggregate Demand-Aggregate Supply framework. Suppose government spending is increased when we are not in a liquidity trap, output is at the natural rate of output, and the Fed does not target the interest rate. You can assume for simplicity expected inflation is always zero. Show what happens over time to output, the price level, and the interest rate. In the long run, what happens to investment given this expansionary fiscal policy.

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