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Resequence Fiscal and Monetary Policy-FOREX

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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........

  1. G is therefore borrowing more
  2. Interest sensitive spending (C+I) decreases
  3. real interest rate increases
  4. PL decreases and Real Output decreases
  5. 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.....

  1. Central Bank Buys Bonds
  2. UE decreases
  3. Interest sensitive spending (C+I) increases
  4. 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.....

  1. US G/S Relatively Less expensive and foreign G/S are relatively more expensive
  2. PL decreases and RGDP decreases
  3. 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