Deus said:
okay i just wipped up this graph for you (pretty good in paint lol)
I also use the graph that demonstes the counter-cyclical aim of macroeconomic policies.....
see this is a smart person graph, cause i didnt get taught it in highschool.
ANYWAYS
to explain it you would say
The vertical lines represent the supply of money in the economy, they have a vertical slope beacause the supply of money is idepenant from the interest rate.
so what the author of the diagram is showing is that when u shift the S curve to the right thats the RBA increasing the money supply (really they are just lowering the cash rate) and when S shifts to the left they are decreasing the money supply (increasing the cash rate).
- see what the diagram is missing is that the change in the supply of money is usually in repsonse to something, usually demand
- so looking at the Df curve (Demand for money) say that there is an increase in real GDP that would mean there is more demand for money and it would shift to the right (so draw ur new line)
- Then in response the RBA would go oh nooooo we dont like the interest rate being too high cause u would actually be at a different point on the original S curve (i.e. higher up on a different demand curve) so they change the cash rate shifting the money supply to the right (meaning that it lowers the cash rate)
i rkn thats boring...
id rather use my Aggregate Demand Aggregate Supply Model
- and show the consequences on AD = C+I+G+X - M
- most students do that as well, and it works out alright
anyways im probably just jeleous that im not smart and didnt know that kewl diagram at highschool
