Macroeconomics Tutor London – Top Private Macroeconomics Teachers
Best Macroeconomics tutors in London for private economics classes.
Lessons in macroeconomics: goods market, money market, ISLM framework, Mundell-Fleming model, Solow Growth Model.
Our Macroeconomics tutor in London will prepare students for an in-depth AD-AS analysis for all monetary and fiscal policy responses. Private lessons for macroeconomics tutoring available in person and online.
No Policy Response
Figure above shows what happens to real output and prices in the short-run and in the long-run when there is no policy response. The initial equilibrium is at 1 where AD1 and AS1 meet. A fall in AD to AD2 shifts the equilibrium to point 2. It lowers the price level and output drops to Y2. The economy is below the full employment level of Yp and there is unemployment.
Without a policy response, over the long-run AS will move to AS3 as cost of production and wages go down. The new equilibrium is at 3 where output increases back to Yp and the economy settles permanently at a lower price level.
Monetary Policy Response
Once AD drops to AD2 and the output falls below Yp, an absence of policy response can restore the economy to equilibrium in the long-run. However, it can take a really long time and the cost in terms of lost output and unemployment can be considerable. In order to mitigate the economic pain and expedite the recovery, a monetary policy response is to lower the interest rate to boost investment. As a result, AD is pushed back to AD1 and output restores to Yp. The level of inflation goes back up as the economy moves back to the original equilibrium level of Yp.
Work with our macroeconomics tutor in London for a complete understanding of fiscal and monetary policy response to exogenous shocks.
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