Post by Guest on May 12, 2016 18:48:09 GMT
Hi,
In the lectures we said that by increasing inflation expectations in a liquidity trap IS could be shifted outward and even if IS shifts enough to raise i above 0, this policy is not contractionary because investment is affected by r, which does not rise (i ≈ r + πe).
If instead, expansionary fiscal policy were used to shift IS enough to raise i above 0, would this crowd out investment?
Thanks
In the lectures we said that by increasing inflation expectations in a liquidity trap IS could be shifted outward and even if IS shifts enough to raise i above 0, this policy is not contractionary because investment is affected by r, which does not rise (i ≈ r + πe).
If instead, expansionary fiscal policy were used to shift IS enough to raise i above 0, would this crowd out investment?
Thanks
