Lecture 26 (Closed Economy)
Economy in a boom
- Economy is flourishing, they need to produce more and leads to a higher number
of workers required. So they will hire more.And leads to lower unemployment
- There will be an upward pressure on wages. The motive to get workers into
working for the company.
- W/P (labour) will be more expensive. Firms will cut back production at this point.
SRAS shifts left. Fiscal Policy
o Multiplier and crowding out
o Government spends $10 million Liquidity Preference Model
When Y (GDP) increases, C (Consumption) increases, people need more money.
People consumes more, they demand more money.
The money demand curve shifts right, bringing the interest rate (r1) up to (r2)
Ms = money supply
Md = money demand
r = cost of borrowing
We have multiplier effects from (G). We also have t