(i) Explain the shape of the LM curve under the so-called ‘zero lower bound’ using a money demand and money supply diagram.
(ii) Given a binding zero lower bound, explain how changes in the price level affect aggregate demand. Illustrate using both a money demand-supply diagram, and an IS-LM diagram.
(iii) What monetary policy options does a central bank have when it faces a zero lower bound on nominal interest rates? Explain.