A 6-step visual walkthrough of Long-Run Consequences of Stabilization Policies — money growth, the Phillips curve, and debt/growth tradeoffs, built right into the page.
If the money supply grows faster than real GDP, the excess shows up as inflation — money growth in excess of real output growth, by the quantity theory, becomes higher prices, not higher real output.
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The Short-Run Phillips Curve
In the short run, lower unemployment is associated with higher inflation — a downward-sloping trade-off policymakers can temporarily exploit by surprising people with unexpected inflation.
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The Long-Run Phillips Curve
Once expectations fully adjust, unemployment returns to the natural rate regardless of inflation — the long-run Phillips curve (LRPC) is vertical, showing no lasting trade-off.
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Deficit vs. Debt
Each year's deficit (a flow) adds to the national debt (a stock). Even a shrinking deficit still adds to total debt — only a surplus reduces it.
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Crowding Out & Long-Run Growth
Sustained government borrowing shifts loanable funds demand right, raising the real interest rate and crowding out private investment — slowing the buildup of capital that drives future growth.
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Determinants of Long-Run Growth
Long-run growth comes from expanding human capital, physical capital, technology, and resources — the same factors that shift LRAS (and the PPC) outward over time.
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How to use the visual review
Spend 30 seconds per step before clicking next. Look at the diagram, then ask yourself: "Could I sketch this from memory and label every part?"
Use the dots below the diagram to jump straight to any step, or the arrow keys to move forward and back.
This is great for review the night before the exam — fast, visual, and covers every core diagram you need to remember from Unit 5.