1. Macro Policy Putting it all together

2. 1. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT LESS THAN 2% Recognition? Policy recommendation? REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

3. 1. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT LESS THAN 2% Expansionary Fiscal and Monetary Policy REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

4. 1. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT LESS THAN 2% Expansionary Fiscal and Monetary Policy REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD AD1 D1 MD1 S1 MS1

5. 2. THE UNEMPLOYMENT RATE IS 5% AND THE CPI IS INCREASING AT 10% Recognition? Policy recommendation? REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

6. 2. THE UNEMPLOYMENT RATE IS 5% AND THE CPI IS INCREASING AT 10% Contractionary Fiscal and Monetary Policy REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

7. 2. THE UNEMPLOYMENT RATE IS 5% AND THE CPI IS INCREASING AT 10% Contractionary Fiscal and Monetary Policy REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD AD1D1 S1MS1 MD1

8. 3. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT 10% Recognition? Policy recommendation? REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

9. 3. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT 10% CONTRACTIONARY MONETARY POLICY REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

10. 3. THE UNEMPLOYMENT RATE IS 10 % AND THE CPI IS INCREASING AT 10% CONTRACTIONARY MONETARY POLICY REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS ADDMD AD1 S1 MS1 MD1

11. 4. THE UNEMPLOYMENT RATE IS 5 % AND THE CPI IS INCREASING AT 2 % Recognition? Policy recommendation? REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S MS AD DMD

12. 4. THE UNEMPLOYMENT RATE IS 5 % AND THE CPI IS INCREASING AT 2 % EXPANSIONARY FISCAL POLICY REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S1 MS AD1DMD AD S

13. 4. THE UNEMPLOYMENT RATE IS 5 % AND THE CPI IS INCREASING AT 2 % EXPANSIONARY FISCAL POLICY (WILL TAX REVENUES RISE? OR WILL THE GOV’T NEED TO BORROW?) REAL GDP ? PRICE LEVEL ? UNEMPLOYMENT ? INTEREST RATES ? INVESTMENT ? REAL GDPQUANTITY OF MONEY QUANTITY OF LOANABLE FUNDS PRICE LEVEL INTEREST RATE SRAS S1 MS AD1DMD AD S D1