es the real output or GDP of an economy can be shown graphically by using a three-graph set: Graph 1The decrease in the discount rate causes an increase in the money supply (Step 1, MS1 to MS2). This increase in money supply causes a decrease in the market interest rate (Step 2, i1 to i2).Graph 2The decrease in the market interest rate (the rate banks charge their customers) (Step 2, i1 to i2), causes an increase in total Investments (I1 to I2).Graph 3The increase of total Investments causes a shift forward of the aggregate demand curve (Step 3, AD1 to ADn). The Aggregate demand curve will continue to increase until the real output (Yreal) or GDP reaches the full potential (). This is shown by Step 4, the movement from Yreal to . The price level does not change in the short-run as shown by no shift of the SRAS (refer to article #5 for an explanation of the SRAS). ...
