Question
This year, country T held politically sensitive parliamentary elections and the government of the incumbent ruling party temporarily increased public expenditure to enhance its popularity.
This year, country T held politically sensitive parliamentary elections and the government of the incumbent ruling party temporarily increased public expenditure to enhance its popularity. The government financed the additional expenditure by selling more bonds. Assuming thatMs,P,P*,Y*, andTwere exogenously given, what kind of impact must this policy have had on the LM curve in country T?
The answer to this question is, The LM curve will not change.
my question is, since government is selling more bonds, doesnt this mean less money supply in the market ? if so, shouldnt the LM curve shift to the left (or upward) ?
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