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Unformatted text preview: 1. • The Other Two Equations, Y d And LM, Are Solved For Equilibrium Values Of Y Solution Of Model Using Keynesian Fixed Price View (Assumes d = 0) • r = [(1 +m dm s T )·(1b)+.00067·(a+I +G )]/[.00067·h + (1b)· l ] • p = 1 • Y = [(a+I +G )· l + h·(m s Tm d1)]/[.00067·h + (1b)· l ] Some Implications • When h = 0, expansionary monetary policy (a rise in m s T ) has no impact on Y, even though it lowers the interest rate. • When l = 0, fiscal policy (a change in G ) has no impact on Y, while monetary policy has a big effect. • When h = ∞, fiscal policy has no effect on Y, and monetary policy has a large impact. • When l = ∞ , fiscal policy has a multiplier effect, and monetary policy has no effect (liquidity trap)....
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 Winter '10
 Boyer
 Monetary Policy, YS, Yd

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