(a) (i) Briefly outline the transmission mechanism through which an expansionary monetary policy (EMP) impacts the level of real income in an economy.

(ii) Under what condition(s), will the EMP become ineffective?

(Assume a closed economy.)[ 2+2 =4 marks]

(b) The growth rate in India has fallen off the cliff. The Government of India is now coming up with a fiscal stimulus to boost up the GDP. But economists are arguing that such an expansionary fiscal policy alone may not do the trick as there will be crowding out.

(i) Can you use a closed economy IS-LM Model to explain graphically and intuitively the impact of such an expansionary fiscal policy and the concern regarding crowding out?

(ii)Can you think of a complementary policy which may be coupled with the fiscal stimulus to counter the possible crowding out so as to achieve a higher impact of the fiscal stimulus on the real output?