From A to B Savings curve shifts right Gov t spending negatively related to savings curve You can see real interest rates rise in the money market due to output increase In the IS LM curve the IS curve shifts outward due to increase in G Interest rise consistent with S I graph In the money market L curve shifts outward due to output increase At ra real money demand exceeeds money supply so households sell bonds price of bonds drop yield on bonds rise expected inflation is constant so real interest rates rise Consumption and investment rise In the AD AS graph output shifts right to AD Keynesian world so price level is constant due to sticky prices In S I graph increase in output y causes savings curve to shift right enough to From B to C offset increase in G so that interest rates return to ra This can be seen in money market diagram where y shifts L curve outward at rb real money supply is greater than real money demand H H buy bonds price of bonds increases yield on bonds decreases expected inflation is constant and real interest rates fall In IS LM graph increase in money supply shifts the LM curve right to the point where IS LM intersect at the full employment line In the AD AS graph the AD curve shifts further outward until ya yp and prices are still sticky so no shift in SRAS c Multiplieri yb ya G G Multiplierii yc ya G G Graph not included didn t have time to draw Not 100 on the answer to this question as well don t want to give wrong answer d e efficiency wage graph not included don t have time to draw it But this is hard for classical school to accept because they believe that the market wage is always going to be the equilibrium Included a snapshot of my notes on the product market this is what is happening here Firms increase output as long as MC P Firms use game theory because its not a perfectly competitive market like classicals believe