g amongst the banks, and eventually the people, the dollar will soon depreciate in value or in other words: inflation. Furthermore, being that the interest rates are negatively related to the rising price line (inflation), consumption will increase, and so will investment, because there will be more incentive to borrow, and therefore buy houses, or advance in technology through resource and development, meaning a balance or increase in output and/or employment.. Moreover, the new exchange rate also encourages export, which will theoretically accomplish the government goal of managing a good economy while decreasing spending and paying off the deficit. Since there is usually a six month period between the time legislation is passed, and the time that the results become visible, the government and the Fed should allow approximately a year to stabilize the economy. However, that’s only assuming that the central bank implements their policies at the correct time. To cite an example, suppose that the President announces to pay off the deficit with an immediate tax hike in January. Hypothetically speaking, all the results mentioned in the second paragraph will become apparent around June. Alan Greenspan will at this point alert the people of his intention to increase the money supply, not to worry them about inflation when it is not yet necessary. By the following January the real GDP should be back on track. In the long run the the government will pay off the deficit, and maybe even before that the bank will have to increase interest rates to slow down the economy, even without the G factorof the equation. Also, in the long run—we’re all dead! ...
