AD and AS

• Short-run AS: Wages are sticky (don't change because of contracts)

• Long-run AS: Wages are flexible

• AD Shifters: C + I + G + Xn

• AS Shifters: I R A P

Fiscal Policy

• Change in Government Spending (GS) and Taxes (T) ONLY

• Expansionary Fiscal Policy: Increase GS or Decrease T

• Contractionary Fiscal Policy: Decrease GS or Increase T

• Changes AD ONLY

• Spending Multiplier: 1 / (1-MPC) = 1 / MPS

• Tax Multiplier: MPC / MPS

• Gap = Multiplier * (Change in Spending or Taxes)