Money Demand, Money Supply, Liquidity Trap презентация

Derivation of the LM-Curve With Liquidity Trap
r
M/P
MS1
Md (Y1)
C
B
r1 r0
A
Y
Y2
Y3
Y1
A
B
C
Md (Y2)
Md (Y3)
r2
LM
r1
r2
r0
πe = 0
As income falls below Y3 , no effect on the interest rate. The LM-curve is horizontal.

Monetary Policy in a Liquidity Trap
r
Y
Y0
YF
LM1
IS
r LM0
LM2
A
B
Y1
πe = 0
The economy is at Y0 below full employment potential. Monetary policy is ineffective in pushing the economy beyond Y1.

Fiscal Policy in a Liquidity Trap
r
Y
Y0
YF
LM
IS1
Y1
πe = 0
IS2
But, fiscal policy seems to work and you get the full multiplier effect as you move from Y0 to Y1. Why do you get the full multiplier effect?

Fiscal Policy in a Liquidity Trap
r
Y
Y0
YF
LM
IS1
Y1
πe = 0
IS2
IS3