How would IS – LM model work in the current economy? On LM side, there is a huge injection into the economy through quantitaitve easing but interest rates are kept at record low levels with central bank decision. Theoretically injection should bring the interest rates down but it is staying at its current levels. Where in the economy is this absorbed is a question coming to the mind of this blogger.
As far as follwed, IS schedule is only affected by a contraction in aggregate demand and supply components.
How those two schedules will interact to determine the equilibrium income and interest rate is something this blogger will be watching in the second half of the year.
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