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Resequence Fiscal and Monetary Policy-FOREX

Last updated about 1 year ago

4 questions

1

1

1

1

Question 1

1.

Government enacts expansionary fiscal policy......

Gov-->Loanable Funds Market-->AD-->Phillips........

G is therefore borrowing more
Interest sensitive spending (C+I) decreases
real interest rate increases
PL decreases and Real Output decreases
Dlf increases since the government needs loans OR Slf decreases since the banks are lending to the government

Question 2

2.

Central Bank Expansionary Monetary Policy

Central Bank-->MM-->Loanable Funds Market-->AD-->Phillips.....

Central Bank Buys Bonds
UE decreases
Interest sensitive spending (C+I) increases
PL increases and Real Output increases

Question 3

3.

Central Bank Contractionary Monetary Policy

Central Bank-->MM->Loanable Funds Market-->Investment-->Forex-->AD-->Phillips.....

Question 4

4.

Foreign Economy has an Inflationary Gap

Foreign Economy-->Forex-->Trade-->AD-->Phillips.....

US G/S Relatively Less expensive and foreign G/S are relatively more expensive
PL decreases and RGDP decreases
US AD decreases

AD decreases

UE increases

G inc and T dec

Ms increases

Slf increases

AD increases

Real interest rates decrease and Qlf increase

Nominal interest rates decrease and Qm increases

Nominal interest rates increase and Qm decreases

NX decreases causing a current account deficit

Ms decreases

UE increases

Central Bank Sells Bonds

Foreign G/S are relatively less expensive AND Domestic G/S are relatively more Expensive

$ appreciates

PL decreases and RGDP decreases

S$ decreases OR D$ increases

US EX decreases and IM increase

Slf decreases

Real interest rates increase and Qlf decrease

AD decreases

US EX decreases and IM increases

S$ decreases and D$ increases

Foreign Economy has high PL and high DI

US Nx decreases causing a Current Account deficit

UE increases

$ can buy more foreign currency and foreign currency can buy less $

$ appreciates