Government enacts expansionary fiscal policy......
Gov-->Loanable Funds Market-->AD-->Phillips........
PL decreases and Real Output decreases
Dlf increases since the government needs loans OR Slf decreases since the banks are lending to the government
AD decreases
Interest sensitive spending (C+I) decreases
real interest rate increases
G inc and T dec
UE increases
G is therefore borrowing more
Central Bank Expansionary Monetary Policy
Central Bank-->MM-->Loanable Funds Market-->AD-->Phillips.....
AD increases
Real interest rates decrease and Qlf increase
Slf increases
Ms increases
Nominal interest rates decrease and Qm increases
Interest sensitive spending (C+I) increases
UE decreases
Central Bank Buys Bonds
PL increases and Real Output increases
Central Bank Contractionary Monetary Policy
Central Bank-->MM->Loanable Funds Market-->Investment-->Forex-->AD-->Phillips.....
Slf decreases
NX decreases causing a current account deficit
S$ decreases OR D$ increases
US EX decreases and IM increase
Nominal interest rates increase and Qm decreases
Real interest rates increase and Qlf decrease
UE increases
AD decreases
$ appreciates
PL decreases and RGDP decreases
Foreign G/S are relatively less expensive AND Domestic G/S are relatively more Expensive
Central Bank Sells Bonds
Ms decreases
Foreign Economy has an Inflationary Gap
Foreign Economy-->Forex-->Trade-->AD-->Phillips.....
US EX decreases and IM increases
PL decreases and RGDP decreases
UE increases
US AD decreases
S$ decreases and D$ increases
US G/S Relatively Less expensive and foreign G/S are relatively more expensive
US Nx decreases causing a Current Account deficit
$ can buy more foreign currency and foreign currency can buy less $
$ appreciates
Foreign Economy has high PL and high DI