Question: zero lower bound Q3) Suppose initially Y Suppose initially Y < Yn, n < and there is zero lower bound. Policy authorities want to increase

zero lower bound

Q3) Suppose initially Y

Suppose initially Y < Yn, n < and there is zero lower bound. Policy authorities want to increase Y back to its potential. i) What type of policy mix would be used? Explain. Illustrate the short-run and medium-run equilibria using relevant graphs (Clearly label all curves and clearly label the initial and final equilibria) (Hint: Use IS- LM-PC model) (25 pts.)

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