Why is the is-lm analysis inappropriate for an economy

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Reference no: EM13897809

1. Even if it is assumed that the central bank holds the money supply exogenous, why is it inappropriate to use the IS-LM equations/curves only for the determination of real output for both the closed and open economies? Frame your answer in terms of the implications of Walras's law.

2. For a designated country of your choice, what is the appropriate assumption for macroeconomic analysis on the exogeneity or endogeneity of the money supply? What justi?es this assumption?

3. What aspects of the economy should the central bank examine in making its decision on whether to use the money supply or the interest rate as its primary/exogenous monetary policy instrument?

4. Why is the IS-LM analysis inappropriate for an economy in which the central bank sets the interest rate exogenously? How would the money supply be determined in this context?

Reference no: EM13897809

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