IS-LM and AS- AD

Expansionary Fiscal Policy The policy shifts the IS curve to the right (IS1). Increases income and decreases interest (r1 less than r0 and y1 less than y0). As the price level rises, the Monetary Authority reduces the money supply, shifting LM to LM1 and AS to AS1	Contractionary Fiscal Policy The policy shifts the IS curve to the left (IS1). Decreasing income and interest (r1 less than r0 and y1 less than y0). As the price level falls, the monetary authority issues more currency, shifting LM to LM1 and AS to AS1	Expansionary Monetary Policy The policy shifts the LM curve to the right (LM1). Increasing income and lowering interest (r1 less than r0 and y1 greater than y0). As a result, there is an increase in demand (AD0 goes to AD1). With the increase in the price level, the monetary authority reduces the money supply, returning LM to its original level (LM0=LM2)	Contractionary Monetary Policy The policy shifts the LM curve to the left (LM1). Decreasing income and increasing interest (r1 greater than r0 and y1 less than y0). As a result, there is a decrease in supply (AS0 goes to AS1). With the increase in the price level, the monetary authority increases the money supply, returning LM to its original level (LM0=LM2) and shifting demand to AD1.

IS = Equilibrium of the Real Market