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