Venezuela’s economy was operating at production capacity until political turmoil reduced the production capacity of the country. To deal with the drop in GDP and to return the aggregate output to its pre-crisis level, the government of Venezuela has decided to increase its expenditure and stimulate demand,

Venezuela’s economy was operating at production capacity until political turmoil reduced the production capacity of the country. To deal with the drop in GDP and to return the aggregate output to its pre-crisis level, the government of Venezuela has decided to increase its expenditure and stimulate demand, but it has found it hard to sell bonds and fund its expenditures. To solve this problem, the government has forced the central bank to print money and buy the bonds directly from the government. In this situation, the equilibrium income in Venezuela determined by the crossing of IS and LM curves: