<p>A deficit-financed stimulus check can be understood as increasing disposable income <span class="math-container">$Y-T$</span> due to the transfer decreasing net taxes. That will shift the IS curve to the right due to the increase in aggregate demand from consumption <span class="math-container">$C(Y-T)$</span>. Unless there is policy coordination, the LM curve will not change as you will be moving along the LM curve, not shifting it (taxes/transfers are not a location parameter of the LM-curve).</p>

CC BY-SA 4.0
2022-03-06T08:00:16.863Z
2022-03-07T07:20:57.020Z
2022-03-07T07:20:57.020Z
jpfeifer
<p>From the standpoint of the IS-LM framework, how do the IS and LM curves shift after issuing stimulus checks?</p>
<p>My fist guess would be that since part of these transfer payments are used to finance consumption, the IS curve shifts to the right: there is a rise in aggregate demand, which is somewhat dampened by a rise in interest rates (a move along the LM curve).</p>
<p>But assuming this is right, wouldn't there also be a rightward shift in the LM curve due to an increase in the money supply associated with issuing the stimulus checks?</p>

CC BY-SA 4.0
2022-03-06T07:44:14.207Z
Hi! What exactly do you mean by the first sentence, "*Departing from a IS-LM framework, how do the IS and LM curves shift*"? So this is not an IS-LM model anymore? Then why are we talking about the IS and LM curves?
Giskard
CC BY-SA 4.0
2022-03-06T15:18:07.903Z
Hi. I'm sorry for the confusion. English is not my first language and I mistakenly used the word "depart" because it's a false cognate of another word in my mother tongue. I edited the post to remove the error. Thanks for the correction.
Breno Barbosa
<macroeconomics>
Stimulus checks in a IS-LM framework
Breno Barbosa
# Stimulus checks in a IS-LM framework

(Asked by: username_0 on 2022-03-05)

From the standpoint of the IS-LM framework, how do the IS and LM curves shift after issuing stimulus checks?

My fist guess would be that since part of these transfer payments are used to finance consumption, the IS curve shifts to the right: there is a rise in aggregate demand, which is somewhat dampened by a rise in interest rates (a move along the LM curve).

But assuming this is right, wouldn't there also be a rightward shift in the LM curve due to an increase in the money supply associated with issuing the stimulus checks?

**Tags:** macroeconomics
> **Comments:**
> **username_1**: Hi! What exactly do you mean by the first sentence, "*Departing from a IS-LM framework, how do the IS and LM curves shift*"? So this is not an IS-LM model anymore? Then why are we talking about the IS and LM curves?  
> **username_0**: Hi. I'm sorry for the confusion. English is not my first language and I mistakenly used the word "depart" because it's a false cognate of another word in my mother tongue. I edited the post to remove the error. Thanks for the correction.  

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## 1 answers

### Answer by username_2 on 2022-03-06. Score: 1

A deficit-financed stimulus check can be understood as increasing disposable income $Y-T$ due to the transfer decreasing net taxes. That will shift the IS curve to the right due to the increase in aggregate demand from consumption $C(Y-T)$. Unless there is policy coordination, the LM curve will not change as you will be moving along the LM curve, not shifting it (taxes/transfers are not a location parameter of the LM-curve).


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