Answer to Question #167868 in Macroeconomics for Ashutosh

Question

What are the implications of IS and LM curves? What are the factors on which the position and the slope of IS and LM 

curves depend?

Answer 1

Implications

When the IS curve is unstable, a money supply target will lead to greater output stability, and when the LM curve is unstable, an interest rate target will produce greater macro stability.

Monetary policy has no effect on the IS curve.

Expansionary monetary policy shifts the LM curve down.

Factors

i) The interest elasticity of the demand for money. 

ii) The Income Elasticity.