Suppose the Congress decides to substantially cut government spending because they believe that reducing government spending is the best way to reduce the federal deficit. This policy will be contrary to President Trump’s election promise of spending significant sums of money to improve infrastructure -roads, bridges, airports etc. and it may not reduce the federal deficit. Imagine you are an aide to White House Chief Economic Adviser, Gary Cohn and he has assigned you the task of writing a letter of between two and three pages to Speaker of the House, Paul Ryan. In this letter you will explain to Speaker Ryan that reducing government spending may not necessarily lead to a reduction in the deficit.
Mr. Cohn wants you to explain in the letter how the government uses fiscal and monetary policy to expand or contract the economy. Be sure to indicate the impact of fiscal and monetary policy on such important economic variables as employment, interest rates, GDP and government revenue. You must refer to at least four (4) peer-reviewed journals.