Part one of term paper
The United States economy is currently producing at a level of full employment in long-run equilibrium. The government then decides to increase taxes and to reduce government spending in an effort to balance the budget. The results of the actions taken by the government is the decrease of real GDP. When taxes are increased that the amount ...

Part two of term paper
... spending the aggregate demand decreases and the aggregate demand curve shifts to the left. This decrease in consumer and government spending also causes businesses to have a surplus of inventories. At this point the output is greater than spending and as a result prices begin to fall. Because of the surplus of goods and falling prices consumption becomes more desirable to consumers and the level of consumer spending rises. The fall in prices causes business to become less profitable and produc ...