One of the topics in Macro Economics course.

1. GROUP MEMBERS
Mohammad Zubair 14772
Abbas Khozema 13210
Syed Saad Tabrez 14150
Mohammad Jawad 14883

2. M * V = P * Y
Two assumptions:
1. Let velocity(V) constant.
2. Let money supply(MS) be fixed.
Then P and Y have a negative relation in order to keep
the equation balance.
P Y

4. •Prices are fixed in
short run
•A.S curve is
horizontal

5. 1. Shifts in A.D, effects the output level but not the price
level.
2. If A.D shifts outward, output increases and if A.D shifts
inwards, output decreases.
3. Firms are willing to sell different quantities at constant
price.

7. Prices are flexible
in long run
A.S curve is
vertical.

8. 1. Shifts in A.D, effects the prices but not the output
level.
2. If A.D shifts outward, prices increases and if A.D
shifts inwards, prices decreases.
3. Firms are willing to sell constant quantity at
different prices.

10. 1. Shocks in A.D occur in the short run when people tend
to hold lesser money and spend more.
2. Which means increasing the velocity while money
supply is held constant V= 1/k

11. 1. As velocity increases, it shifts the A.D curve from A to B
(outwards).
2. Increasing the output from Y’ to y while holding the price
constant.
3. As firms cost increases, they increase the price from P’ to p,
decreasing the output from y to Y’. Hence, shifting the
equilibrium from B to C.

12. 1. A.D is planned
expenditure.
2. Y(output) is actual
expenditure
3. Slope of A.D depends
on MPC

13. A.D can shift upwards or downwards if there is:
1. A change in autonomous consumption.
2. A change in investment( due to lower or higher interest rate).
3. A change in government spending( either expansion or contraction of
fiscal policy).
4. A change in taxes.
5. Changes in import and exports.

14. A.D curve also shifts when there are shifts in IS and
LM curve.
Shifts in IS and LM curve are due to
1. Monetary policy (change in money supply)
2. Fiscal policy (change in G and T)