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This is the gist, there are a few labels missing, but the crowding out is illustrated here

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This is the gist, there are a few labels missing, but the crowding out is illustrated here

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Crowding in is incredibly rare because economies will rarely operate above capacity and also government policy will most likely take longer to implement.

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When the government introduces fiscal policy, there are changes in the investment and spending the decreases the GDP and price level due to a decrease in spending and increase in government borrowing.

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Fiscal Policy is, in general, very lagging because there are a lot of processes and politics involved for the process to occur successfully.

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These are much harder to fix than demand shocks, using fiscal policy will normally increase the price level too high or decrease the GDP too much in result to such policy use.

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The government uses taxes, government spending, or changes in government transfers to increase or decrease spending to combat recession or expansion

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These are basically policies that are used to reduce effects of excess expansion or help the economy during a recession

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This unit was pretty short and basically named all the changes and policies that were given.

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Expansionary fiscal policy is essentially an increase in government spending or decrease in taxes
Contraction is a decrease in government spending or an increase in taxes.

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When the equilibrium point is after the Qf, or LRAS line, then the economy is working above its capabilities and is referred as needing contractionary fiscal policy, and the other way around is expansionary fiscal policy.

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This point that they meet is at equilibrium, and the shifts are normally individual (at least what we discussed in class) of the SRAS and AD curves.

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This is the combined AD-AS curves into one gigantic model that shifts much like the normal supply and demand but for different reasons and with LRAS factored.

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Reasons why the AGGREGATE supply curve is upwards sloping.

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Reasons why the AGGREGATE supply curve is upwards sloping.

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Stick Wage Theory - Wages are sticky so firms must adjust to changes in the economy through the supply and services
Sticky Prices- When the price level drops, some firms respond very slowly or don't change prices, this reduces purchases and results in changes in supply
Misconceptions - If the price level drops, people and firms begin to view the amount of money that they have left not relatively. This results in changes of supply and services by firms to respond to these changes.

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When considering aggregate supply and demand, the shifts in the graph will most likely be between either the SRAS or the AD, not the LRAS because it is very hard to change (need changes in technology or more resources)

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The curve essentially will always look like this and is considered the short run because wages tend to be sticky. The long run that is included is a straight line that represents the ideal economic position.

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Changes in Demand curve follows the effects of shifts in GDP and consumption

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Changes in Demand curve follows the effects of shifts in GDP and consumption

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This is shown above in the graphic. These are essentially why it would shift left or right, depending on if there is a decrease or increase in expectations of one of these or actual changes.

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Reasons why the aggregate demand curve is downward sloping.

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Reasons why the aggregate demand curve is downward sloping.

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Wealth Effect - When the price level is high, consumer's purchasing power is decreased and thus their consumer spending is decreased as well
Interest Rate effect - When Price levels are high it reduces the purchasing power of holdings and households money, which leading to a rise in interest rates and a fall in investment spending and consumer spending

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This is basically what it looks like, but sometimes the graph is curved to demonstrate an exponential effect.

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The shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government and the rest of the world.

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When there are unplanned changes in inventory like extra or less exchanging of goods, then these are called unplanned inventory investments.

A businesses actual investments are the combination of investments in normal inventory + the investments made in unplanned investments for changes in demand.

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This is the stock of goods or services that business have in order to quickly satisfy consumer demand

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This is used to demonstrate the relationship between the disposable income and spending of a household, as one increases, so does the other. (Household income is actually disposable household income)

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The reason why MPC is calculated this way is because money never stops at the first purchase, some of it is saved, but most of it is circulated back into the economy through a cycle of employers and consumers.

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Multiplier = 1/1-mpc or 1/mps

Multiplier*Money Changed = Total Change in GDP

The way this works is MPC + MPC^2 + MPC^3... and so on and so forth, added together to the GDP, this is exponentially decreasing so it will eventually diminish.

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MPC = Marginal Propensity to consume
MPS = Marginal Propensity to save
MPC is equal to the consumer spending/total disposable income