The document discusses the effectiveness of fiscal and monetary policies using the IS-LM model. It explains that the effectiveness of these policies depends on the slopes of the IS and LM curves. Steeper IS and flatter LM curves make fiscal policy more effective, while flatter IS and steeper LM curves make monetary policy more effective. The document analyzes different scenarios regarding the slopes of the curves and their implications for crowding out and crowding in. It also discusses using a policy mix of expansionary monetary policy and relatively tight fiscal policy.
Through this slide I try hard to explain it in as simple as possible, so you guys easily understand what IL-SM curve is & its derivation graphically & mathematically, and I hope you guys no need to open you books after you go through with it.
Through this slide I try hard to explain it in as simple as possible, so you guys easily understand what IL-SM curve is & its derivation graphically & mathematically, and I hope you guys no need to open you books after you go through with it.
here in Keynesian theory of income and employment is explained in deep so all those people who want to get keenly into this theory must at least have a look at the same as it can improve your knowledge.
here in Keynesian theory of income and employment is explained in deep so all those people who want to get keenly into this theory must at least have a look at the same as it can improve your knowledge.
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS .docxsmile790243
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 1
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 2
Milestone Two
Macroeconomic Focus and Industry Analysis
NOTE: highlighted any change you made. Know which one is revised. Thanks.
Note: See all highlighted on yellow comments and revised it.THANKS.
Macroeconomic Focus and Industry Analysis
Macroeconomic forecast of the monetary school of thought.
From a monetarist perspective, regulation of the flow and circulation of money is important in determining and influencing preferred economic conditions in the United States. Reducing the circulation of money in the economy has many effects on the macroeconomic environment and determines the activities of other stakeholders in the financial market. From a monetarist school of thought, the government has sole responsibility to both country and citizens in ensuring favorable monetary policies are implemented that are akin to the prevailing economic conditions through the control of inflation and prevention of deflation in the country (Fair, 2011).
Reducing the supply of money in the economy has effects on the macro-economic Cory Kanth:
This point is not clear. It needs clarification in terms of better explanation.
environment as earlier mentioned. Reducing money circulation has both short run and a long run effect that shift practices in the economic environment. For instance, consumer spending is affected by the implementation of monetary policies. When the government implements monetary policies that do not favor money circulation, consumer spending capabilities are significantly reduced (Fair, 2011). The reduction in the spending is due to the reduced flow of money in the financial market which limits the funds accessible to consumers in the market. This policy is usually exercised in a bid to control inflation in the market where prices go up due to increased demand catalyzed by the availability of money in the hands of the spenders.
Reducing the growth of money circulation from a monetary perspective is empirical in determining the cost of labor. When there is a circulation of money in the market, individuals can opt for willing unemployment due to the availability of funds through other sources other than the low paying jobs (Gnimassoun & Mignon, 2015). Further analysis on the effect of reducing money circulation is the government stabilizes the prices of labor meaning little choice is left for personnel who may discriminate employment due to reduced wages or low salaries.
Investment spending is a factor directly affected by the increase in interest rates. This is because investors avoid high lending rates due to high interests that are amassed over operational periods. Moreover, increased lending rates affect investment spending since capital and ...
KEY TAKE AWAYS
Objectives
Definition
Basic macroeconomic concepts
Types of Macro economic Policy
Monetary Policy
Fiscal Policy
Comparison between Monetary and Fiscal Policy
Features of Macroeconomic Policy
Effect of Macro economic Policy
Importance of Macroeconomic Policy
Weakness of Macroeconomics Policy
Conclusion
Why Macroeconomic Structural and Wage-Price Indicators are Puzzling the Polic...Economic Policy Dialogue
This commentary tries to answer the puzzling questions – why there is a disconnect between inflation and unemployment, unemployment rate and wage rate, monetary policy rate stance and real economy, economic buoyancy and price-wage indicators; and also, why the neutral interest rate and the natural unemployment rate are declining. It points out that the official data do not represent the structural realities of the economy. As the official measurements have been deviating more from the social and economic facts, the economic indicators have tended to become less predictable and applicable.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
বাংলাদেশের অর্থনৈতিক সমীক্ষা ২০২৪ [Bangladesh Economic Review 2024 Bangla.pdf] কম্পিউটার , ট্যাব ও স্মার্ট ফোন ভার্সন সহ সম্পূর্ণ বাংলা ই-বুক বা pdf বই " সুচিপত্র ...বুকমার্ক মেনু 🔖 ও হাইপার লিংক মেনু 📝👆 যুক্ত ..
আমাদের সবার জন্য খুব খুব গুরুত্বপূর্ণ একটি বই ..বিসিএস, ব্যাংক, ইউনিভার্সিটি ভর্তি ও যে কোন প্রতিযোগিতা মূলক পরীক্ষার জন্য এর খুব ইম্পরট্যান্ট একটি বিষয় ...তাছাড়া বাংলাদেশের সাম্প্রতিক যে কোন ডাটা বা তথ্য এই বইতে পাবেন ...
তাই একজন নাগরিক হিসাবে এই তথ্য গুলো আপনার জানা প্রয়োজন ...।
বিসিএস ও ব্যাংক এর লিখিত পরীক্ষা ...+এছাড়া মাধ্যমিক ও উচ্চমাধ্যমিকের স্টুডেন্টদের জন্য অনেক কাজে আসবে ...
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
How to Add Chatter in the odoo 17 ERP ModuleCeline George
In Odoo, the chatter is like a chat tool that helps you work together on records. You can leave notes and track things, making it easier to talk with your team and partners. Inside chatter, all communication history, activity, and changes will be displayed.
1. MOOCS by Dr. Subir Maitra
Course Name: M.Com Year: First
Session: 2017-18
Paper- 1.3
Macroeconomics and Business Environment
Module: One
Lecture-12
Department of Commerce
University of Calcutta
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
2. General Equilibrium: Aspects of Closed Economy--
Commodity Market and Money Market Equilibrium--
IS-LM Approach.
EFFECTIVENESS OF FISCAL AND MONETARY POLICIES,
FISCAL AND MONETARY MIX
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
3. Monetary Policy Effectiveness and the Slope of the IS Schedule
The effectiveness of monetary policy depends on the slope of the IS schedule.
Flatter the IS curve, greater is the effect of monetary policy on income level and
vice versa.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
4. Monetary Policy Effectiveness and the Slope of the IS Schedule
In Figure a, the IS schedule is steep, reflecting a low interest elasticity of
investment. Monetary policy is relatively ineffective in this case. Income rises
very little as a result of the
increase in the money
supply. Monetary policy
affects income by lowering
the interest rate and
stimulating investment. If
investment is little affected
by interest-rate changes,
which is the assumption in
Figure a, monetary policy
will be ineffective.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
5. Monetary Policy Effectiveness and the Slope of the IS Schedule
In Figure b, where the interest sensitivity of investment is substantially greater,
monetary policy has correspondingly greater effects. Therefore, our first
result is that monetary
policy is LESS EFFECTIVE
when the IS schedule is
steep—that is, when
investment is interest-
inelastic.
Monetary policy is MORE
EFFECTIVE the higher the
interest elasticity of
investment and thus the
flatter the IS schedule.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
6. Monetary Policy Effectiveness and the Slope of the IS Schedule
The effectiveness of monetary policy depends on the slope of the IS schedule.
Flatter the IS curve, greater is the effect of monetary policy on income level and
vice versa.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
7. Monetary Policy Completely Ineffective: When IS Schedule is vertical
The IS schedule is vertical if investment is
completely insensitive to changes in the
interest rate (interest elasticity equals zero).
If the IS schedule is vertical, increasing the
money supply simply shifts the LM
schedule down along the IS schedule.
The interest rate falls until money demand
increases by enough to restore equilibrium
in the money market, but income is
unchanged.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
8. Monetary Policy Completely Ineffective: When IS Schedule is vertical
To increase income, the increase in the
money supply and the resulting fall in
the interest rate must stimulate
investment. When the IS schedule is
vertical, investment is not affected by
monetary policy because, by
assumption, investment does not
depend on the interest rate. The
steeper the IS schedule, the closer we
come to this extreme case.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
9. Fiscal Policy Effectiveness and the Slope of the IS Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
The effectiveness of fiscal policy depends on the slope of the IS schedule. Steeper the
IS curve, greater is the effect of fiscal policy on income level and vice versa.
10. Fiscal Policy Effectiveness and the Slope of the IS Schedule
The effectiveness of fiscal policy also depends on the slope of the IS
schedule. Steeper the IS curve, greater is the effect of fiscal policy on
income level and vice versa.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
11. Fiscal Policy Effectiveness and the Slope of the IS Schedule
The steep IS schedule occurs when investment is relatively interest inelastic. The less sensitive
investment is to the interest rate, the greater the effect of a given fiscal policy action is. As
income increases, the interest rate must rise to keep the money market in equilibrium.
This rise in the interest rate causes
investment to decline, partially offsetting
the expansionary effect of the government
spending increase. This interest-rate
induced decline in investment causes the
income response in the IS – LM model to
fall short of the response given by the
multiplier from the simple Keynesian
system. This effect on investment, which
is often referred to as Crowding Out.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
12. Fiscal Policy Effectiveness and the Slope of the IS Schedule
One factor determining the importance of such crowding out of private investment is the
slope of the IS schedule. If investment is not very sensitive to changes in the interest rate,
the assumption in Figure a , then the interest-rate increase will cause only a slight drop
in investment, and income will rise by
almost the full amount of the
horizontal shift in the IS schedule.
Alternatively, if investment is highly
interest sensitive, the assumption in
Figure b , then the rise in the interest
rate will reduce investment
substantially, and the increase in
income will be reduced significantly
relative to the prediction of the
simple Keynesian model.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
13. Fiscal Policy Fully Effective: No Crowding Out of Investment
The case of the vertical IS schedule is
shown in Figure c . Here investment is
completely interest insensitive. The
increase in government spending causes
the interest rate to rise, but this rise does
not result in any decline in investment.
Income increases by the full amount of
the distance of the horizontal shift in the
IS schedule; there is NO CROWDING
OUT of investment.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
14. Monetary Policy Completely Ineffective: When IS Schedule is vertical
To increase income, the increase in the
money supply and the resulting fall in
the interest rate must stimulate
investment. When the IS schedule is
vertical, investment is not affected by
monetary policy because, by
assumption, investment does not
depend on the interest rate. The
steeper the IS schedule, the closer we
come to this extreme case.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
15. Fiscal Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
With the slope of the IS schedules same and the size of the increase in government
expenditure also being the same in the following two graphs, the effect on income
of an expansionary
fiscal policy action is
LARGER when the
LM schedule is
RELATIVELY FLAT(Fig
a) and SMALLER when
the schedule is
RELATIVELY STEEP
(Fig b).
16. Fiscal Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
Fiscal policy is more effective when the interest elasticity of money demand is high, making the LM
schedule relatively flat. The reason behind this: An increase in government spending causes income to rise.
As income rises, the demand for transactions balances increases, and to reequilibrate the money market
with an unchanged supply of money requires a rise in the interest rate. If money demand is highly sensitive
to changes in the interest rate, only a small
rise in the interest rate is required to restore
equilibrium in the money market. This is the
case in Fig a, where the interest rate rises
by a small amount, from r0 to r1.As there is a
small increase in the interest rate, other
things being equal, the decline in
investment will be small. With little crowding
out of private investment, income rises by
nearly the full amount of the horizontal shift
in the IS schedule.
17. Fiscal Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
When money demand is relatively
interest-inelastic (Fig b), a greater
increase in the interest rate (from r0
to r1 in Fig b) is required to
reequilibrate the money market as
income rises. The larger increase in
the interest rate leads to a larger
decline in investment, offsetting more
of the expansionary effect of the
increase in government spending.
Consequently, the increase in
income for the steeper LM schedule
(Fig b) is smaller.
18. Fiscal Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
Since speculative demand for money is not sensitive to rate of
interest, as LM is vertical (which is also known as the
CLASSICAL CASE), there will be no change in both transaction
and speculative demand of money. Thus, a new equilibrium will
be attained at a sufficiently higher interest rate which can adjust
aggregate demand such that it remains at its initial level even
after increase in government expenditure. In Fig c , this occurs
at interest rate r1 . At that point, private investment has declined
by an amount just equal to the increase in government
spending. Thus, there is FULL CROWDING OUT and Fiscal
policy is COMPLETELY INEFFECTIVE
If money demand is completely insensitive to changes in the interest rate (Fig c), fiscal policy is
COMPLETELY INEFFECTIVE and there occurs FULL CROWDING OUT. As G is increased, T remaining the
same government’s budget deficit increases. To meet this budget deficit, the government starts selling bonds,
which increases supply of bonds in the bond market pushing its prices down and interest rate up.
19. Fiscal Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
Fiscal policy is more effective when the interest elasticity of money demand is high, making the LM
schedule relatively flat. The reason behind this: An increase in government spending causes income to rise.
As income rises, the demand for transactions balances increases, and to reequilibrate the money market
with an unchanged supply of money requires a rise in the interest rate. If money demand is highly sensitive
to changes in the interest rate, only a small
rise in the interest rate is required to restore
equilibrium in the money market. This is the
case in Fig a, where the interest rate rises
by a small amount, from r0 to r1.As there is a
small increase in the interest rate, other
things being equal, the decline in
investment will be small. With little crowding
out of private investment, income rises by
nearly the full amount of the horizontal shift
in the IS schedule.
20. Monetary Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
Monetary policy is more effective when the interest elasticity of money demand is less, making the LM
schedule relatively steep. In Fig a , the LM schedule is relatively flat. In Fig b , the schedule is steeper. In
each case, the increase in the money supply shifts the LM schedule by an equal amount from LM0 to LM1 .
Monetary policy is least effective in Fig a ,
where the LM schedule is relatively flat (the
interest elasticity of money demand is
high). The effect on income of the increase
in the money supply is relatively greater
In Fig b , where the interest elasticity of
money demand is lower.
21. Monetary Policy Effectiveness and the Slope of the LM Schedule
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
At the initial level of income and interest rate, the increase in the money supply will create an excess supply
of money, causing the interest rate to fall. This fall will stimulate investment and, hence, income. The
interest rate must decline to a point where the lower interest rate and higher income level have increased
money demand by an amount equal to the increase in the money supply. In Fig a , where money demand
is very interest sensitive, a small drop in the
interest rate is all that is required for this
purpose. Consequently, the increase in
investment, and hence income, will be
small in this case. In Fig b , the interest
elasticity of money demand is lower, and a
larger fall in the interest rate is required to
reequilibrate the money market after the
money supply increases. As a
consequence, investment, and therefore
income, increase by a greater amount.
22. Monetary Policy Effectiveness and the Slope of the LM Schedule
In Fig c , where the interest elasticity of money demand is zero and the
LM schedule is vertical. At the initial level of income and interest rate,
the increase in the money supply will create an excess supply of
money, causing the interest rate to fall. This fall will stimulate
investment and, hence, income. Here the fall in the interest rate itself
does nothing to increase the demand for money as money demand
does not depend on the interest rate. The fall in the interest rate,
however, causes investment and income to rise. The rise in income
will continue until all the new money is absorbed into additional
transactions balances. This is the maximum possible increase in
income for a given increase in the money supply, because all of the
new money balances end up as transactions balances required by the
higher income level. None of the new money is siphoned off as an
increase in speculative demand as the interest rate falls.
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, University of Calcutta, subirmaitra.wixsite.com/moocs
23. Monetary and Fiscal Policy Effectiveness and the Slopes of the IS and
LM Schedules
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
24. The Monetary–Fiscal Policy Mix
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
Both monetary or fiscal policy can affect income in the IS-
LM model. But the effects of the two on the interest rate,
and therefore on investment, are different. In the case of
expansionary monetary policy, the interest rate declines and
investment increases. With an expansionary fiscal policy
action—an income tax cut, for example—the interest rate
rises and investment declines. This is a significant
difference because the level of investment determines the
rate of capital formation and is important to long-term
growth of the economy. Policymakers often go for a policy
mix of relatively “tight” fiscal policy and “easy” monetary
policy to keep the interest rate low and to encourage
investment. Moreover
25. The Monetary–Fiscal Policy Mix
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
Moreover, whenever fiscal policy actions such as
income tax cuts are used to expand the economy, the
policymakers would prefer to have an accommodating
monetary policy—an accompanying increase in the
money supply that will prevent the interest rate from
rising and thus prevent the crowding out of
investment. Such a monetary–fiscal policy
combination is illustrated in Figure. At the same time
that the IS schedule is shifted to the right by a tax cut,
the money supply is increased sufficiently so that the
LM schedule shifts far enough to the right to prevent a
rise in the interest rate.
26. The Monetary–Fiscal Policy Mix
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs
A tax cut from T0 to T1 shifts the IS schedule
from IS(T0) to IS(T1). By itself, this fiscal policy
shift would push the interest rate up to r1 . If the
tax cut were accompanied by an increase in
the money supply from M0 to M1 , the LM
schedule would shift to the right from LM(M0)
to LM (M1). Together, the two policy actions
would increase output to Y1, with the interest
rate remaining at r0. Thus, effect of fiscal policy
will be the same as that in the Simple
Keynesian Model. There is no Crowding Out.
27. End of Lecture 12
MOOCS by Dr. Subir Maitra, Associate Professor of Economics, HCC, subirmaitra.wixsite.com/moocs