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Vertical_LM_Makes_Monetary_Policy_More_Powerful - Why A...

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Unformatted text preview: Why A Vertical [M Curve Makes Monetary Policy More Potent I Old LM curve I {5 curve / —” New LM curve Monetary stimulus r1 normally raises income and cuts the interest rate Interest rate (r) ‘L O Y’ Y Real income (Y) :5 curve Old LMI New LM curve curve I I E E Vertical LM implies Interest rate (r) ‘1‘. | more potent monetary policy O Y' Y Real income (Y) ...
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