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Diagrammatically represent how the Yd curve (in the short-run Keynesian models) will shift given each of...

Diagrammatically represent how the Yd curve (in the short-run Keynesian models) will shift given each of the following:

-- a rise in the money supply

-- a decline in taxes

-- a decline in autonomous investment

-- a decline in autonomous money demand

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Answer #1

1.

Increase in money supply, will cause the increase in consumption spending. As a result, the aggregate demand curve will shift to the right and real output will increase.

2.

A decline in taxes, will increase the disposable income to spend. It will also have a tax multiplier effect on the aggregate demand. As a result, the aggregate demand curve will shift to the right and real output will increase.

3.

A decline in autonomous investment, will cause aggregate supply to shift to the left and real output will come down.

4.

A decrease in autonomous money demand, will shift the AD curve to the left. It will cause the real output to come down.

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