Figure I-1. The IS Curve

Output

Interest Rate

IS

Figure I-2. The MP Curve

Output

Interest Rate

MP

Figure I-3. The IS-MP Diagram

Output

Interest Rate

IS

MP

Figure I-4. The Effect of an Increase in Government Purchases on Output at a Given Interest Rate

E = C(Y-T) + I(r) + G0

E = C(Y-T) + I(r) + G1

E = Y

45°

Output

Planned Expenditure

Output

Interest Rate

MP

Figure I-5. The Effects of an Increase in Government Purchases on Output and the Interest Rate

IS0

IS1

Figure I-6. The Effects of a Shift to Tighter Monetary Policy

Output

Interest Rate

MP0

IS

MP1

Output

Interest Rate

MP1

IS1

MP0

Figure I-7. The Effects of Simultaneous Changes in Fiscal and Monetary Policy that Leave Output Unchanged

IS0

Output

Interest Rate

MP

Figure I-8. The Effects of a Fall in Consumer Confidence

IS1

IS0

Figure I-9. The Effects of an Increase in the Money Supply

Output

Interest Rate

IS

•

• E0

E1

•

• B

A

Figure II-1. The Effects of a Rise in the Interest Rate on Equilibrium Output in the Goods Market with Floating Exchange Rates

C(Y-T) + I(r1) + G + CF(r1)

C(Y-T) + I(r0) + G + CF(r0)

E = Y

45°

Output

Planned Expenditure

Figure II-2. The IS-MP Diagram for an Open Economy with Floating Exchange Rates

Output

Interest Rate

IS

MP

CF(r)

ε

NX

NX(ε)

r r

Figure II-3. The Determination of Net Exports and the Exchange Rate Under Floating Exchange Rates

IS

MP

Y CF

Figure II-4. The Effects of an Increase in Government Purchases with Floating Exchange Rates

CF(r)

ε

NX(ε)

r r

IS0

MP

IS1

NX

Y CF

Figure II-5. The Effects of a Shift to Tighter Monetary Policy with Floating Exchange Rates

CF(r)

ε

NX(ε)

r r

IS

MP1

MP0

NX

Y CF

CF(r)

ε

NX

NX0(ε)

r r

Figure II-6. The Effects of Protectionist Policies with Floating Exchange Rates

IS

MP

Y CF

NX1(ε)

-

Figure II-7. Monetary Policy with Fixed Exchange Rates

r r RG(r) = NX(ε)-PCF(r)

RG Y

r

MP ~

0

-

Figure II-8. The Determination of Output and the Interest Rate in an Open Economy with Fixed Exchange Rates

r r RG(r) = NX(ε)-PCF(r)

RG Y

r

MP ~

IS

0

Figure II-9. The Effects of an Increase in Government Purchases with Fixed Exchange Rates

r r RG(r)=NX(ε)-PCF(r)

RG Y

r

MP ~

IS0

0

IS1

-

Figure II-10. The Effects of Expansionary Monetary Policy with Fixed Exchange Rates

r r RG(r)=NX(ε)-PCF(r)

RG Y

r

MP0 ~

IS

0

MP1 ~

E0 ● E1

●

-

Figure II-11. The Effects of Protectionist Policies with Fixed Exchange Rates

Note: RG0(r) = NX0(ε )-PCF(r); RG1(r) = NX1(ε )-PCF(r)

r r RG0(r)

RG Y

IS1

0

RG1(r)

MP1 ~

IS0

r0 MP0 ~

r1

Figure II-12. The Effects of a Fall in Export Demand with Fixed Exchange Rates

Note: RG0(r) = NX0(ε )-PCF(r); RG1(r) = NX1(ε )-PCF(r)

r r RG1(r)

RG Y

IS1

0

RG0(r)

MP0 ~

IS0

r1 MP1 ~

r0

● E0

● E1

Figure II-13. The Effects of a Devaluation

Note: RG0(r) = NX(ε 0)-PCF(r); RG1(r) = NX(ε 1)-PCF(r)

r r RG0(r)

RG Y

IS1

0

RG1(r)

MP1 ~

IS0

r0 MP0 ~

r1

Figure III-1. The Inflation Adjustment Line

Output

Inflation

IA

Figure III-2. The Aggregate Demand Curve

π

AD

Y

r

IS

MP1

MP0

Y

π1

π0

Figure III-3. The AD-IA Diagram

Output

Inflation

IA

AD

Figure III-4. Adjusting to Long-Run Equilibrium

Output

Inflation

IA

AD

A •

• ELR

Y

Figure III-5. Long-Run Equilibrium

Output

Inflation

IA

AD

• ELR

Y

Figure III-6. The Real Interest Rate When the Economy Is in Long-Run Equilibrium

Output

Interest Rate

IS

MP

rLR

Y

Output

Interest Rate

MP

Figure III-7. The Immediate Effects of an Increase in Government Purchases

IS0

IS1

Figure III-8. The Immediate Effects of an Increase in Government Purchases in Terms of the AD-IA Diagram

Output

Inflation

IA

AD0

• E0

Y

AD1

E1 •

Figure III-9. The Effects of an Increase in Government Purchases

Output

Inflation

IA

AD0

•

Y

AD1

1LRE

•

0LRE

Figure III-10. The Long-Run Effects of an Increase in Government Purchases in Terms of the IS-MP Diagram

Output

Interest Rate

MP0

IS0

IS1

MP1

Y

1LRr

0LRr

Figure III-11. The Immediate Effects of a Shift to Tighter Monetary Policy

Output

Interest Rate

MP0

IS

MP1

Figure III-12. The Effects of a Shift to Tighter Monetary Policy

Output

Inflation

IA

Y

AD1

AD0

•

0LRE

•

1LRE

Figure III-13. The Long-Run Effects of a Shift to Tighter Monetary Policy in Terms of the IS-MP Diagram

Output

Interest Rate

MP0, MPLR

IS

MP1

Y

Figure III-14. The Immediate Effects of an Unfavorable Inflation Shock

Output

Inflation

IA0

AD

Y

IA1

Figure III-15. The Effects of an Unfavorable Inflation Shock

Output

Inflation

IA0

AD

Y

IA1

• ELR

Figure III-16. The Effects of a Fall in the Natural Rate of Unemployment

Output

Inflation

IA

AD

0Y

•

0LRE

1Y

1LRE •

Figure III-17. The Effects of a Credible Shift to Tighter Monetary Policy

Output

Inflation

IA0

Y

AD1

AD0

•

0LRE

•

1LRE

IA1 •

• B

A