Fiscal Policy Based on Aggregate Demand
Fiscal Policy Based on Aggregate Demand
This Demonstration shows whether contractionary or expansionary fiscal policy is necessary, based on where an arbitrary aggregate demand curve is in relation to a corresponding short run aggregate supply curve. The current employment and full employment lines are also shown relative to the aggregate demand (AD) and short run aggregate supply (SRAS) curves. Based on the AP Macroeconomics curriculum, it is assumed that the SRAS curve exhibits exponential growth past the level of full employment. This simple model demonstrates the relation of AD to SRAS and the effects of fiscal policy on employment and output.