Problem
Suppose the central bank announces that it will pursue a monetary expansion in the current period.
1. Assume this the monetary expansion is only for the current period. What will the effect on output and interest rates? Show graphically.
2. Now Suppose the central bank implements a monetary expansion in the current period and is expected to continue this monetary expansion in the future. Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.