Unit Four Video Summaries: Video Six

Blog Video Summaries

3/26/16

6th Video Summary

The last video combined a few of the concepts we learned earlier and showed the relationship between the Loanable Funds Market, the Money Market, and Aggregate Demand-Aggregate Supply.

If the government runs a deficit, then everything is affected.

• Demand for Money shifts RIGHT, Interest Rate goes UP, Supply of Money stays the same
• Demand for Loanable Funds shifts RIGHT or Supply of Loanable Funds shifts LEFT
• Aggregate Demand shifts RIGHT, Price Level goes UP, and GDP goes UP

If you'll notice, everything increased when the government ran a deficit. This is called the Fisher Effect.

Fisher Effect- The change in the interest rate must equal the change in price level. They must have a 1:1 direct ratio.

It is important to be able to explain the relationship between all of the graphs. 

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