Page 194 - DECO402_Macro Economics

Unit–21: Effect of Fiscal Policies Under Different Cases in IS-LM Framework

Self Assessment Notes

State whether the following statements are True or False:
7. The IS-LM Model is helpful in derivation of AD Curve.
8. The Real money supply decreases after the rise in price level.
9. The derivation of AD is the result of inverse relationship between price level and actual
GDP.
10. The LM Curve shifts towards left because of Expansionary Monetary Policy.

21.5 Summary

y Similarly, the reduction in money supply shifts LM Curve towards left side and it shifts the
AD Curve towards left side on the definite price level. Undoubtedly, when AD shifts towards
right then there is rise in actual GDP and when AD shifts towards left, then there is reduction
in actual GDP.

21.6 Keywords

y Fiscal Policy – Financial Policy.
y Monetary – Related to money.

21.7 Review Questions

1. Define the Monetary and Fiscal Policy.
2. Explain the Monetary Policy and AD (Aggregate Demand).
3. What do you mean from the Monetary Policy and shift in the AD Curve?
4. What do you mean from the Fiscal Policy and shift in the AD Curve?

Answers: Self-Assessment
1. determines 2. right 3. (a) 4. (a)
5. (b) 6. (b) 7. True 8. True
9. True 10. False

21.8 Further Readings

Books 1. Macroeconomics— Mohan Srivastava, DND Publications, 2010.
2. Macroeconomics— S.K. Chakravarti, Himalaya Publishing House, 2010.
3. Macroeconomics: Economic Growth, Fluctuations and Policy— Robert
E. Hall and David H. Chapel, Wina Books, 2010.

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