Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Solution Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Dollar Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Dollar Appreciates (interest rates are increasing) Depreciates (interest rates are decreasing) Net Exports

Expansionary Fiscal Policy Contractionary Fiscal Policy Problem Recession (low price levels) Inflation (high price levels) Solution Increase government spending and/or decrease taxes Decrease government spending and/or increase taxes Aggregate Demand Increase (Shifts to the Right) Decrease (Shifts to the Left) Price Level Increase Decrease RGDP Inflation Rate Unemployment Rate Interest Rate Money Demand Exchange Rate Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Dollar Appreciates (interest rates are increasing) Depreciates (interest rates are decreasing) Net Exports Imports > Exports (aggregate demand will increase and so will the price, exports will decrease) Exports > Imports (aggregate demand will decrease and so will the price, exports will increase)

Expansionary Monetary Policy Contractionary Monetary Policy Problem Solution Money Supply Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Money Supply Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Dollar Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Dollar Depreciates (interest rates are decreasing) Appreciates (interest rates are increasing) Net Exports

Expansionary Monetary Policy Contractionary Monetary Policy Problem Cheap available credit Restrict credit Solution Lower Reserve Ratio Lower Discount Rate Lower Federal Funds Rate Raise Reserve Ratio Raise Discount Ratio Raise Federal Funds Rate Money Supply Increase (Buying Bonds = Bigger Bucks) Decrease (Selling Bonds = Smaller Bucks) Aggregate Demand Increase Decrease Price Level RGDP Inflation Rate Unemployment Rate Interest Rate Bond Prices Exchange Rate Decrease foreign demand for dollars (foreigners find higher interest rates elsewhere) Increase foreign demand for dollars (foreigners want to earn a higher interest rate) Dollar Depreciates (interest rates are decreasing) Appreciates (interest rates are increasing) Net Exports Exports > Imports (value of the dollar is decreasing) Imports > Exports (value of the dollar is increasing)