Question

Draw a graph to show why conventional monetary policy became ineffective during the Great Recession.​

Answer 1

In the diagram, we have rate of interest(r) on the Y axis and Income(Y) on the X axis. A general IS-LM model framework has been used here. The space between equilibrium e₁ and e₂ is a depiction of a depressionary phase in the economy, where, neither Monetary nor Fiscal Policy remain effective. the Great Depressionary Phase can thus be depicted in a diagram. The phase e₁ and e₂ is also known as Keynesian Range and is an exact depiction of Depression of the 1930s.