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Laabri

Resequence Fiscal and Monetary Policy-FOREX

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Last updated over 1 year ago
4 Nsɛmmisa
1
Asemmisa {{asɛmmisaAhyɛnsode}}
1.

Government enacts expansionary fiscal policy......

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

  1. G inc and T dec

  2. PL decreases and Real Output decreases

  3. G is therefore borrowing more

  4. real interest rate increases

  5. UE increases

  6. Interest sensitive spending (C+I) decreases

  7. Dlf increases since the government needs loans OR Slf decreases since the banks are lending to the government

  8. AD decreases

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1
Asemmisa {{asɛmmisaAhyɛnsode}}
2.

Central Bank Expansionary Monetary Policy

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

  1. UE decreases

  2. Real interest rates decrease and Qlf increase

  3. Interest sensitive spending (C+I) increases

  4. Slf increases

  5. PL increases and Real Output increases

  6. AD increases

  7. Nominal interest rates decrease and Qm increases

  8. Central Bank Buys Bonds

  9. Ms increases

Asemmisa {{asɛmmisaAhyɛnsode}}
3.

Central Bank Contractionary Monetary Policy

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

  1. Ms decreases

  2. PL decreases and RGDP decreases

  3. Slf decreases

  4. Real interest rates increase and Qlf decrease

  5. S$ decreases OR D$ increases

  6. AD decreases

  7. Nominal interest rates increase and Qm decreases

  8. UE increases

  9. $ appreciates

  10. NX decreases causing a current account deficit

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

  12. Central Bank Sells Bonds

  13. US EX decreases and IM increase

Asemmisa {{asɛmmisaAhyɛnsode}}
4.

Foreign Economy has an Inflationary Gap

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

  1. US EX decreases and IM increases

  2. $ appreciates

  3. UE increases

  4. Foreign Economy has high PL and high DI

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

  6. US AD decreases

  7. PL decreases and RGDP decreases

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

  9. S$ decreases and D$ increases

  10. US Nx decreases causing a Current Account deficit