Essay
We have learned in previous chapters that fiscal policy can have lasting effects on savings, investment, and economic growth. On the other hand, this chapter seems to suggest that the only long-run effect of fiscal policy is an increase in the price level. How could you use the aggregate demand and supply model for a more accurate description of the short-run and long-run effects of an increase in government spending? Could you distinguish between different uses of government expenditures to predict their effects on prices and output?
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