IS and LM curves, their characteristics, and limitations to understand macroeconomic equilibrium in goods and money markets.

This IS-LM framework suggests that, via QE, the LM curve shifts right (money is pumped into the economy) but ignores the good collateral (and moneyness) that was taken out of the economy via QE.

1. Consider the model on page 178 stated below: Look now in the second paragraph of page 191 under Numerical Example to see how one can derive the AD curve. As its 3 rd line says, "setting the ...

The right-hand chart illustrates the alternative theory. A loose global monetary policy shifts the LM curve to the right, to LM2. Bond yields again fall, to r3, but this time output increases.