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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........

AD decreases
G inc and T dec
UE increases
Dlf increases since the government needs loans OR Slf decreases since the banks are lending to the government
G is therefore borrowing more

Question 2

2.

Central Bank Expansionary Monetary Policy

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

Real interest rates decrease and Qlf increase
Interest sensitive spending (C+I) increases
AD increases
Nominal interest rates decrease and Qm 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 AD decreases
$ can buy more foreign currency and foreign currency can buy less $
UE increases

Interest sensitive spending (C+I) decreases

real interest rate increases

PL decreases and Real Output decreases

Slf increases

Ms increases

Central Bank Buys Bonds

UE decreases

PL increases and Real Output increases

Central Bank Sells Bonds

UE increases

Real interest rates increase and Qlf decrease

PL decreases and RGDP decreases

Slf decreases

Nominal interest rates increase and Qm decreases

AD decreases

$ appreciates

NX decreases causing a current account deficit

Ms decreases

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

US EX decreases and IM increase

S$ decreases OR D$ increases

US Nx decreases causing a Current Account deficit

Foreign Economy has high PL and high DI

$ appreciates

S$ decreases and D$ increases

US EX decreases and IM increases

PL decreases and RGDP decreases

US G/S Relatively Less expensive and foreign G/S are relatively more expensive