real is gdp that has been adjusted for changes in the price level.
real is gdp that has been adjusted for changes in the price level.
gdp that has been adjusted for changes in the price level?
real
by itself, the is–lm model is used to study the short run when prices are fixed or sticky and no inflation is taken into consideration. but in practice the main role of the model is as a sub-model of larger models (especially the aggregate demand-aggregate supply model – the ad–as model) which allow for a flexible price level. in the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the is–lm model for aggregate demand y based on a particular price level. starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the is–lm model for that price level, if one considers a higher potential price level, in the is–lm model the real money supply m/p will be lower and hence the lm curve will be shifted higher, leading to lower aggregate demand as measured by the horizontal location of the is–lm intersection; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped.
is–lm model
fiscal theory of the price level









































the fiscal theory of the price level is the idea that government fiscal policy affects the price level: for the price level to be stable (to control inflation), government finances must be sustainable: they must run a balanced budget over the course of the business cycle, meaning they must not run a structural deficit.









































it is an unorthodox theory, which contrasts with the usual monetary theory of the price level, where the price level is primarily or exclusively determined by supply of money.
fiscal theory of the price level