Fed Adopts Political Tactics on Critics

Apart from the political content, the article mentions that the Fed chairman Ben S. Bernanke plans to spur the economic recovery by lowering interest rates through buying $600 Billions of governmental bonds. I think this is a solid real life example of the effect of monetary policy that we learned in our IS-LM and Aggregate Demand Curves. Increase in Money supply- in this case through buying $600 Billion of governmental securities by the Fed- shifts the LM curve to the right. This increase in supply of money provides a new IS-LM equilibrium with lower interest rate, which eventually boosts up Investments and Output. Given our understanding of the IS-LM and Aggregate Demand curve, I think Mr. Bernanke's plan to revive the economic recovery through buying of governmental bonds should work unless there are shocks, such as huge increase in expected inflation and/or huge rise in Price level.