Re: THE KING IS NAKED

["Dr. Bruce R. McFarling" <Bruce.McFarling@xxxxxxxxxxxxxxxx>]

On Sun, 26 Jan 2003 14:38:02 -0500,
"Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:

>A very good point, Warren.  Keynesian solutions cannot
>possibly come from monetary measures alone.

Even with a simple ISLM diagram, if you draw a
vertical full employment level of real output,
with a steep IS curve hitting the horizontal
axis to the left of the full employment level
of output, you can give a sense of the kind of
liquidity trap that the Japanese face, and why
monetary policy alone cannot fix things.

It also shows what a difference it makes
between assuming full employment macroequilibrium
and thinking about whether a macroequilibrium
involves full employment.