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Macroeconomics

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Moderate

ARA Reasons

MACRO-EQTEXJ

In 2008, the US economy fell into a major recession. The fiscal authority (Congress) passes a major spending bill called the American Recovery Act (ARA), which funneled government spending into infrastructure projects without changing taxes.

In a Keynesian model where only a fraction of firms in the economy have fixed prices, we would expect inventories to temporarily

, money demand to

, real money balances to

in the short run as a result of the ARA.