Real GDP

1
Expansionary Fiscal Policy Incr G Decr T
PL
AS
AD2
AD1
Start from a Balanced Budget G T 2 Trillion
PL4
G T
PL1
2 T 2 T
YR
YF
Real GDP
Q
G
G
I.R.
AD
Y/Empl./PL
LFM
T
Y/Emp/PL
DI
C
AD
T
LFM
IR
2
Contractionary Fiscal Policy Decr G Incr T
PL
AS
AD2
Start from a Balanced Budget G T 2 Trillion
PL1
PL4
AD1
G T
2 T 2 T
YF
Real GDP
Q
YI
G
G
I.R.
AD
Y/Empl./PL
LFM
T
Y/Emp/PL
DI
C
AD
T
LFM
IR
3
Easy(Expansionary) Money EQUILIBRIUM GDP
MS1
MS2
DI
Investment Demand
10 8 6 0
10 8 6 0
Real rate of interest, i
DM
Buy Bonds
If there is a RECESSION MS will be increased.
Quantity of money demanded and supplied
QID1
QID2
AD2
AS
AD1
I want a job as a Rockette
P2
Price level
P1
YR
Y
Real GDP
Buy Bonds
I.R.
QID
MS
Y/Emp/PL
AD
4
Tight Contractionary Money EQUILIBRIUM GDP
Di
Its cheaper to burn money than wood.
Dm
MS1
MS2
Investment Demand
10 8 6 0
10 8 6 0
Real Interest Rate
Sell bonds
If there is INFLATION, MS will be decreased.
Quantity of money demanded and supplied
QID1
AS
QID2
AD2
P1
AD1
Price level
P2
Yi
Y
Sell Bonds
MS
I.R.
AD
Y/Empl./PL
QID