Suppose a bond with no expiration date has a face value of $25,000 and annually pays a fixed amount on interest of $1,500.
September 3, 2020
“In the model of a dominant firm, assume that the fringe supply curve is Q = -1 + 0.2P, where P is market price and Q is output. Demand curve is…
September 3, 2020

Use the IS-LM model to show that monetary policy becomes more effective relative to fiscal policy as money demand becomes less sensitive to the interest rate. Explain the result intuitively. What does this imply about the use of monetary and fiscal policy over the business cycle?

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