4 Assume that the economy takes a downturn In a Keynesian fr

4. Assume that the economy takes a downturn. In a Keynesian framework of an IS-LM model, how would you decide whether to use a fiscal policy or a monetary policy to boost the economy?

Solution

We will see the slopes of these curves and effect of change in is or lm curve on interest rate and national income. The policy which raises national income by greater amount will be preferred