The IS-LM Model
1. Policy Effectiveness
a. Why the economy might have vertical (steep) LM curve? What would be the consequence if there is Government stimulus package? Use the Money market diagram and IS-LM to explain
b. Why the economy might have horizontal (flat) LM curve? What would be the consequence if there is Government stimulus package? Use the Money market diagram and IS-LM to explain
c. Why the economy might have vertical (steep) IS curve? What would be consequence if the Fed tried to increase money supply? Use the Money market diagram, Production/Demand diagram and IS-LM to explain
d. Why the economy might have horizontal (flat) IS curve? What would be the consequence if the Fed tried to increase money supply? Use the Money market diagram, Production/Demand diagram and IS-LM to explain.
e. Use the IS-LM, Money Market and Production diagrams to explain what happened after 2008 in your view. Explain in details what happened. Why the economy is still sluggish in 2016?