5.1 | Policy Interactions

Contractionary fiscal policy and contractionary monetary policy both shift the (AD/SRAS) curve to the (right/left).

A combination of the two will lead to a(n) (increase/decrease) in price level and (increase/decrease) in real output.

AD, left, decrease, decrease

Expansionary fiscal policy and expansionary monetary policy both shift the (AD/SRAS) curve to the (right/left).

A combination of the two will lead to a(n) (increase/decrease) in price level and (increase/decrease) in real output.

AD, right, increase, increase

Contradictory fiscal policy and monetary policy actions (e.g. expansionary fiscal policy + contractionary monetary policy, or vice versa) will have this type of effect on the ___ curve, and still have this type of effect on the price level and real output…

indeterminate impact on the AD curve

indeterminate impact on the price level and real output

Lower interest rates (increase/decrease) investment and economic growth.

Higher interest rates (increase/decrease) investment and economic growth.

increase, decrease