Teaching the Liquidity Trap

Users of my favorite intermediate macro textbook will be familiar with the dynamic model of aggregate demand and aggregate supply, which I first put into the book in the 7th edition. That new chapter shows the student how to incorporate a standard Taylor rule into business-cycle theory, as well as how to trace the dynamic response of the economy to various shocks. Instructors who teach that chapter might be interested in this new paper, which shows how to incorporate the zero lower bound into the model.