Aggregate Demand
What type of policy controls the goods market?
Fiscal Policy
What is the solution to the crowding out effect called?
FED Accommodation
What direction is the AS curve?
Starts out flat, then becomes vertical in long run
When is there an equilibrium interest rate?
Money Demand = Money Supply
Expansionary
What is an example of something that shifts AS curve to the left?
Bad weather, increased regulations, increasing input costs like labor
What are the two relationships where the money market and the goods market affect each other?
r inc. -> I dec. -> AE dec. -> Y dec.
(Money market -> affecting goods market)
Y inc. -> Md inc. -> r. inc.
(Goods market -> affecting money market)
What are the steps to limit the crowding out effect?
Increase Money Supply through FED action
What does it mean if someone says capacity causes the shape of the AS curve?
When the economy is operating on flat portion of AS curve -> economy is not at full capacity (recessionary side of business cycle), vertical portion - economy is at full capacity (peak of business cycle)
Under which type of policy does the crowding out effect only happen under?
Expansionary Fiscal Policy (Increase in Gov Spending)
What type of policy controls the money market?
Monetary Policy
Besides capacity, what else cause the shape of the AS curve?
Wages lag behind price level
What is the problem with the crowding out effect?
During an inflationary period, should expansionary or contractionary action be taken?
Contractionary
What is an example of something that shifts the AS curve to the right?
Good weather, decreased regulations, decreasing input costs like labor