The Keynesian Economic Theory By Yash and Rit
The Keynesian Economic Theory By Yash and Rit
The Big Idea Price Level LRAS P AD forever the same 0 Y YF Real output
Too little AD Price Level LRAS P AD 1 0 Y 1 AD 2 YF Real output
Price Level LRAS 2 P AD 1 0 Y AD 2 YF 1 Real output YF 2
Too much AD Price Level LRAS P 1 P 2 AD 2 0 YF AD 1 Real output
Price Level LRAS 1 LRAS 2 P 1 P 2 AD 0 YF 1 Real output YF 2
Causes of AD curve movement To left – towards recession To right – towards boom � Decreased � Increased consumer and private sector spending � Appreciation of exchange rate – decreased export revenue � Poor export performance consumer and private sector spending � Depreciation of exchange rate – increased export revenue � Improved export performance
Government influences on AD curve To left – to decrease inflation To right – to increase employment � Decreasing � Increasing government spending (fiscal policy) � Tax increase (fiscal policy) � Increasing interest rates (monetary policy) � Currency revaluation – cheaper imports government spending (fiscal policy) � Tax cuts (fiscal policy) � Decreasing interest rates (monetary policy) � Currency devaluation – cheaper exports, therefore more demand
CAUSES OF LRAS CURVE MOVEMENT To left Disasters such as flooding and tsunami Depletion of natural resources (Being invaded) To right Increased population Improved education Improved infrastructure (Invasion)
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