Explain, with the aid of three separate IS-LM-FE diagrams, how a decrease in government purchases will affect real output, real interest rate and the general price level in three steps: (i) before the general price level adjusts; (ii) when the general price level is adjusting; (iii) after the price adjustment process is completed. Is the general price level increasing or decreasing during the price adjustment process? Explain the intuition of your answer with reference to the AD-AS framework.

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