Question
The question of the monetary-fiscal policy mix arises because expansionary monetary policy policy reduces the interest rate while expansionary fiscal policy increases the interest rate.
The question of the monetary-fiscal policy mix arises because expansionary monetary policy
policy reduces the interest rate while expansionary fiscal policy increases the interest rate. Accordingly, expansionary fiscal policy increases income and output while reducing the level of investment because fiscal expansion causes a higher interest rate. Expansionary monetary policy increases income and output and the level of investment because the rate of interest declines. Governments have to choose the mix. How can this IS and LM analysis be applied in our current situation facing the COVID pandemic?
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