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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. AD decreases
  3. PL decreases and Real Output decreases
  4. Interest sensitive spending (C+I) 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. AD increases
  2. UE decreases
  3. Interest sensitive spending (C+I) increases
  4. 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.....

  1. US AD decreases
  2. US G/S Relatively Less expensive and foreign G/S are relatively more expensive
  3. US Nx decreases causing a Current Account deficit
UE increases
real interest rate increases
G inc and T dec
Ms increases
Real interest rates decrease and Qlf increase
PL increases and Real Output increases
Slf increases
Central Bank Buys Bonds
NX decreases causing a current account deficit
UE increases
S$ decreases OR D$ increases
AD decreases
Real interest rates increase and Qlf decrease
PL decreases and RGDP decreases
Nominal interest rates increase and Qm decreases
$ appreciates
Ms decreases
Foreign G/S are relatively less expensive AND Domestic G/S are relatively more Expensive
US EX decreases and IM increase
Central Bank Sells Bonds
Slf decreases
$ can buy more foreign currency and foreign currency can buy less $
UE increases
$ appreciates
US EX decreases and IM increases
PL decreases and RGDP decreases
S$ decreases and D$ increases
Foreign Economy has high PL and high DI