National Income and Price Determination

Non-discretionary fiscal policy

Expansionary fiscal policy

Neutral fiscal policy

Contractionary fiscal policy

Decrease in long-run aggregate supply (LRAS).

Decrease in short-run aggregate supply (SRAS).

No change in either short-run or long-run aggregate supply.

Increase in long-run aggregate supply (LRAS).

When the quantity of aggregate demanded is equal to the quantity of aggregate supply

When the current output is also equal to potential output

When the price level is at its highest point in the short run

When the economy is producing at its maximum potential output in the short run

It temporarily increases structural unemployment due to skill mismatches before adjusting back towards natural unemployment rates over time.

It causes frictional unemployment because workers must switch jobs often as industries rapidly evolve technologically.

It decreases cyclical unemployment by creating more jobs instantly within these industries.

It has no effect on equilibrium unemployment since technological advances do not change worker efficiency or company hiring practices immediately.

Long-run equilibrium at a lower price level and potential output unchanged.

Long-run equilibrium at the same price level but with increased potential output.

Short-term deflation followed by rapid inflation due to increased money supply.

Continuous cycles of recession as businesses cannot adapt to changing price levels.

An increase in consumption spending

An increase in money supply

A decrease in input prices

A decrease in exports

A direct injection of liquidity into capital markets that stimulates an outward shift of LRAS reflecting increased productivity.

A decrease in the money multiplier effect causing a leftward shift of AD due to reduced lending capability of banks.

An immediate increase in real GDP as banks extend more loans due to higher reserves leading to greater investment spending.

An expansionary fiscal impact that results from lower governmental borrowing costs enhancing public sector expenditure possibilities.

It shifts the long-run aggregate supply curve outward.

It has no direct effect on aggregate supply.

It decreases short-run aggregate supply.

It increases short-run aggregate supply.

When the quantity of aggregate demanded is equal to the quantity of aggregate supply

When the current output is also equal to potential output

When the price level is at its highest point in the short run

When the economy is producing at its maximum potential output in the short run

Lowers equilibrium price level and output.

Increases equilibrium price level and output.

Remains constant at higher levels of inflation and real GDP.

Depresses equilibrium price level and output.