What is false in the following reasoning? The IS-LM model is a powerful conceptual framework allowing economists
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Question:
What is false in the following reasoning?
The IS-LM model is a powerful conceptual framework allowing economists
to do the comparative statics of the economy's short-run equilibrium of
fiscal and monetary policy. Leaving aside polar cases, the IS curve is negatively sloped and the LM curve is positively sloped, so that the IS-LM model predicts that a ceteris paribus increase in government purchases
will always be able to increase the equilibrium income and the equilibrium interest rate as well as to attain full employment in the economy, irrespective of the size of the increase in .
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