AD_{2(without policy)}

Price
level

Real GDP

AD_1

i

M

An Expantionary Fiscal Policy in the Dynamic Model

    The economy begins at the equilibrium
point A. Then the LRAS, SRAS and AD
curves all shift to the right (the LRAS and
LRAS curves have already been shifted). 
Y is the potential level of GDP.
    Slide the first shifter to shift the AD 
curve, which shows a new equilibrium 
without fiscal policy. Then slide the 
second shifter to see what happens with 
an expansionary fiscal policy. 
    Compare the difference in the price 
levels and the real GDPs in two cases.

AD_{2(with policy)}

p_1

p_2

Y_1

Y_2

LRAS_1

LRAS_2

SRAS_1

SRAS_2

AD_2

Increase in AD due
   to expansionary
      fiscal policy

Y

a = 0 (slider from 0 to 2, step 0.01)
u = Vector((0, 0), (10, 0))
v = Vector((0, 0), (0, 10))
g(x) = If[1 ≤ x ≤ 9, (0.8 * x) + 1]
h(x) = If[2 ≤ x ≤ 10, (0.8 * x)]
b = 0 (slider from 0 to 1, step 0.01)
f(x) = If[1 ≤ x ≤ 9, ((-0.8) * x) + 8]
A = Intersect(g, f, (4.375, 4.5))
L_{X1} = (4.38, 0)
L_{Y1} = (0, 4.5)
c = Segment(L_{Y1}, A)
L_X = (4.38, 9)
d = Segment(L_X, L_{X1})
w(x) = If[1 ≤ x ≤ 9, ((-0.8) * x) + 8 + a + b]
B = Intersect(h, w, (4.999999999999999, 3.9999999999999996))
X_B: (x(B), 0)
Y_B: (0, y(B))
e = Segment(Y_B, B)
i = Segment(B, X_B)
L_{X2} = (6.88, 0)
L_{Y2} = (6.88, 9)
j = Segment(L_{Y2}, L_{X2})
A_{L1} = (4.38, 1)
A_{L2} = (6.88, 1)
A_{S1} = Point(g)
A_{S2} = (9.05, 7.24)
A_{D1} = Point(f)
A_{D2} = (3.75, 7)
A_{D3} = (5, 7)
k = Vector(A_{D1}, A_{D2})
l = Vector(A_{D2}, A_{D3})
m = Vector(A_{S1}, A_{S2})
n = Vector(A_{L1}, A_{L2})
C = Point(w)