adjusting - over time, equilibrium shifts back to natural level of output  

• increase in real money stock (M)
• no M component in AS (no shift in short run)
• increase in M >> shifts AD to the right
• must go back to natural level of output >> AS shifts up until intersection at Yn again
• by equation Y = Y(M/P, G, T), increase in M results in a proportional increase in P of equal magnitude (over time, Y would be constant)

• neutrality of money - changing nominal money only affects change in price level
  • in medium run, output and interest rate stays constant
• cannot sustain changes in output (only temporary)
  • shock - changes to the economy in short run
  • propagation mechanism - how economy shifts after a shock (mostly in recovering the natural order of things)
• M/P = Y L(i)
  • to keep Y, i constant, P proportionally increases by whatever amount M increases

• decrease in deficit (less G)
• AS curve not shifting in short run
• less G >> AD relation shifts to the left
• AS curve shifts down in medium run to restore Y_n
• unlike w/ M, changes in G affect the interest rate

• taking Y_n = C(Y_n-T) + I(Y_n,i) + G:
  • in medium run, Y stays constant
  • so change in G must be balanced by change in interest i (the only thing left that can change)
  • unlike money market, has no P component to take away need for change in interest
• w/ G decrease, I (investment) must increase >> interest decreases