The Y-E Diagram

Use a single Powerpoint slide to build a standard Y-E diagram. Use textboxes to label the axes and

all the essential curves, and key points such as Y

e

equilibrium income. As with your previous

Assignment on the Y-E model, the diagram in the Lecture Video will show you what your diagram

might look like.

Once you’ve built a reasonably good looking diagram, copy it onto three additional slides (easiest way

is to just copy the entire slide three times). Keep one as a reserve, and carry out the three following

tasks, one on each slide:

i) In response to the Great Recession that began in 2009, the Australian Government and

Central Bank carried out the standard ‘policy mix’ to compensate for the fall in exports and

raise GDP. Show this policy mix in your first Powerpoint slide, with a brief explanation of

each policy in textboxes.

ii) The ‘Fed’, the US Central Bank, similarly carried out an expansionary monetary policy, with

interest rates close to zero and large increases in the Money Supply. However, these have

not succeeded in raising GDP – the best that could be said is that they have prevented a

larger fall. In your second Powerpoint slide, carefully draw the IS-LM curves as assumed

by the school of economics which would predict this failure of monetary policy in a

recession. Name that school of economics in a textbox.

iii) One criticism of the expansionary fiscal policy adopted by many governments during the

Recession has been that it will reduce investment by firms. Draw the IS and LM curves in

your third diagram so that they would fit this prediction.