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Unformatted text preview: ( i ) Derive today&s LM curve explicitly. ( ii ) Explain what today&s IS curve is constituted of. Question 3 Suppose that the nominal interest rate could be zero in the Keynesian sticky wage model. ( i ) Derive today&s liquidity money, the LM 1 ; curve, paying particular attention to that part of the LM 1 curve when nominal interest rate is zero. ( ii ) If the central bank tries to increase current money supply when the current nominal interest rate is zero, what are the equilibrium e±ects of this today? Explain carefully using graphs. ( iii ) Recently, nominal interest rates have been at, or close to, zero in Japan. What implications does this have for the Japanese monetary policy. 1...
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This note was uploaded on 01/18/2012 for the course ECONOMICS 2102 taught by Professor Tan during the Spring '11 term at National University of Singapore.
 Spring '11
 Tan

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