5.1

Fiscal and Monetary Policy Actions in the Long Run

AP Macroeconomics

Short run vs. long run review

Expansionary fiscal policy in the long run

123456789101112131415161718123456Real GDPPrice LevelA (original)B (SR)C (LR)AD₁AD₂SRAS₁SRAS₂LRAS

Expansionary fiscal policy: A→B (short run), B→C (long run, SRAS shifts left)

Expansionary monetary policy in the long run

Contractionary policy in the long run

The long-run neutrality of money

Why self-correction works

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