1. The Keynesian Economic Theory
By Yash and Rit
Rit

2. The Big Idea Price Level Real output LRAS AD P forever the same Y YF
LRAS AD P
Rit
forever the same Y YF

3. Too little AD
Price Level
Real output
LRAS P
Rit
AD1
AD2 Y1 Y2 YF

4. Price Level
Real output
LRAS
LRAS2 P
Rit
AD1
AD2 Y
YF1
YF2

5. Too much AD
Price Level
Real output
LRAS P1 P2
Yash
AD2
AD1 YF

6. Price Level
Real output
LRAS1
LRAS2 P1 P2
Yash AD
YF1
YF2

7. Causes of AD curve movement
To left – towards recession
To right – towards boom
Decreased consumer and private sector spending
Appreciation of exchange rate – decreased export revenue
Poor export performance
Increased consumer and private sector spending
Depreciation of exchange rate – increased export revenue
Improved export performance
Yash

8. Government influences on AD curve
To left – to decrease inflation
To right – to increase employment
Decreasing government spending (fiscal policy)
Tax increase (fiscal policy)
Increasing interest rates (monetary policy)
Currency revaluation – cheaper imports
Increasing government spending (fiscal policy)
Tax cuts (fiscal policy)
Decreasing interest rates (monetary policy)
Currency devaluation – cheaper exports, therefore more demand
Rit

9. Causes of LRAS curve movement
To left
To right
Disasters such as flooding and tsunami
Depletion of natural resources
(Being invaded)
Increased population
Improved education
Improved infrastructure
(Invasion)
Yash