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Explain clearly why economists are concerned about inflation when the Fed reduces interest rates and show...

Explain clearly why economists are concerned about inflation when the Fed reduces interest rates and show what happens in the economy graphically using AE/AS graphs.

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When the Federal Reserve reduces the rate of interest using an expansionary monetary policy, it raises investment spending because investment is inversely related to interest rate. Higher investment spending will increase aggregate expenditure / aggregate demand so that AE / AD shifts out. As a result real GDP is increased and this also raises the price level, which implies that inflation has increased. This concerns the economists

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