The Hidden Economics: The IS-LM Pyramid and the Monetary Policy Range

Abstract

In textbooks on Macroeconomics, the  curve and the curve are presented either in a wrong way or in an incomplete way. Once these two curves are derived properly, two related curves can be easily derived: a (  curve and a  curve. These two curves form a pyramid (let us call it the  Pyramid) that helps us learn many issues relating to monetary policy, fiscal policy, inflation rate, unemployment rate, aggregate demand, and GDP growth. This paper constructs the pyramid along with the Monetary Policy Range and it shows the effects of monetary policy and fiscal policy on this pyramid in a closed economy.