fiscal policy - controlled by the gov't by deciding on spending (G) and taxes (T)  

• fiscal expansion - when gov't purchases increase or taxes are cut
  • G increases, T decreases >> Y increases >> shifts IS curve right
• fiscal contraction - when gov't purchases cut or taxes increased
  • G decreases, T increases >> Y decreases >> shifts IS curve left
  • Y decreases >> demand decreases >> production cut >> Md decreased
  • leads to lower interest >> increase in investment

monetary policy - controlled by central banks, federal reserve  

• monetary expansion - money supply increases
  • Fed purchases bonds >> injects money in economy >> money supply curve (vertical line) shifts right
  • need lower interest rate so that consumers don't invest
  • lower interest rate >> LM curve shifts down >> higher Y
• monetary contraction - money supply decreases

mixed policy - goods/money markets may choose to cooperate or not w/ policies  

• 4 possible cases
  • may or may not cooperate w/ each other
• 1. expansionary monetary, expansional fiscal >> LM shifts down, IS shifts right
• 2. expansionary monetary, contractionary fiscal >> LM shifts down, IS shifts left
• 3. contractionary monetary, contractionary fiscal >> LM shifts up, IS shifts left
• 4. contractionary monetary, expansionary fiscal >> LM shifts up, IS shifts right