Shifts in Economy Flashcards
Just memorize these
productivity (increase)
ND increase
FE right
marginal product of labor (increase)
ND increase
FE right
capitaI stock (increase)
ND increase
FE right
wealth (increase)
NS decrease (Income Effect) FE left (Classical)
Increase in wealth increases amount of leisure workers can afford .
S decreases
Md increases
future wage (increase)
NS decrease (Income Effect) FE left (Classical)
Increase in expected future real wage increases amount of leisure workers
can afford.
Working-age population (increase)
NS increase FE right (Classical)
Labor Participation Rate (increase)
NS increase FE right (Classical)
ND increase shifts
1 productivity (increase) 2 capital stock (increase)
NS increase shifts
1 wealth (decrease)
2 future income (decrease)
3 population (increase)
4 participation rate (increase)
current output Y (increases)
Savings (increases)
S (increases)
expected future output Yf (increases)
S decreases
IS increases
Anticipation of future income raises current desired consumption, lowering current
desired saving.
Wealth (increases)
S decreases
IS increases
Some of the extra wealth is consumed, which reduces saving for given income.
NS decrease
Md increases
expected real interest rate r (increases)
S probably rises (substitution effect)
An increased return makes saving more attractive, probably outweighing the fact that
less must be saved to reach a specific savings target.
income effect (borrower): S increase income effect (lender): S decrease
Government purchases (increase) G
S fall
IS increases
Higher government purchases directly lower desired national saving.
Taxes increase
S increases if no RE
S unchanged if RE
IS decreases
saving rises if consumers don’t take into account a
future tax cut and thus reduce current consumption.
Savings S increase shifts
1 Y increase 2 Yf decreases 3 wealth decreases 4 expected real interest rate increases 5 G decreases 6 T increase
investment increase I
1 real interest rate decreases r
2 effective tax rate decreases t
3 expected future MPK increases
MPK f = uc/ (1-t)
uc = (r+d)pk/(1-t)
so uc increase generally increases investment curve
pk = price of new capital good r = interest d = depreciation
real interest rate increase
investment decrease
The user cost increases, which reduces desired capital stock.
Md falls
effective tax rate increases
investment decreases
IS shifts left decreases
expected future MPK increases
investment increases
IS increases
Md increase shifts
Money Demand
1 Price level P (increase) 2 Real income Y (increase) 3 real interest rate r (decrease) 4 expected inflation (decrease) Md = P x L(Y, i ) i = r + inflation
5 nominal interest rate on money (increase)
6 wealth (increase)
7 risk of alternative assets (increase)
8 risk of money (decreases)
9 liquidity of alternative assets (decrease)
10 efficiency of payment technologies (decrease)
Price level P (increase)
Ms Shifts, not md
Md rises proportionally
LM left
Real income Y (increase)
Md rises less than proportionally
LM left
Real interest rate r (increase)
Md falls
LM right
Investment I decreases
expected inflation (increases)
Md falls
LM right
nominal interest rate on money im (increase)
Md rises
LM left
wealth (increase)
Md increases
LM left
part of increase in wealth can be held in form of money
S decreases
NS decrease
risk of alternative assets (increase)
Md rises
LM left
risk of Money (increase)
Md decreases
LM right
liquidity of alternative assets (increase)
Md falls
LM right
liquidity of Money (increases_
Md increases
LM left
factors that shift FE right
1 beneficial supply shock
2 increase in labor supply
3 increase in capital stock
savings curve (increase)
IS shifts left
factors the shift IS curve right
1 expected future output (increase) 2 wealth (increase) 3 government purchases G (increase) 4 taxes T (decrease) RE 5 future MPK (increase) 6 effective tax rate on capital (decrease)
investment curve (increase)
IS shifts left
factors that shift LM curve right
1 nominal money supply M (increase)
2 Price level P (decrease)
3 Expected inflation (increase)
4 nominal interest rate on money im (decrease)
5 any other thing decreasing Md
decrease wealth, decease risk of alternative assets, increase liquidity of alternative assets, increase in efficiency of payment technologies
Md money demand falls
LM right
M rises money supply
LM left
IS right
AD?
AD right
LM right
AD right
AD right shifts
1 IS right - S decrease or I increase - expected future output (increase) - wealth (increase) - G (increase) - T (decrease) -future MPK (increase) - effective tax rate on capital (decreases) 2 LM right - Md decrease or M increase - M nominal money supply (increase) - expected inflation (increase) - nominal interest rate on money (decrease) - risk of assets (decrease) - risk of money (increase)
temporary wage increase
NS increases (substitution effect)
