Consider the economy below. In this instance, social progressives are in charge of Congress and the Presidency. They decide to remake government by increasing government spending on infrastructure projects and making transfer programs such as Social Security, Medicare, and Medicaid more generous. To pay for this though, they significantly increase taxes on “the wealthy” and businesses. Illustrate what you think will happen. Though socially coherent, is there any economic conflict between these policies. What are the immediate effects on output, unemployment, and inflation?
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