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 the 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?