Resequence Fiscal and Monetary Policy-FOREX

Government enacts expansionary fiscal policy......

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

1. PL decreases and Real Output decreases
2. Interest sensitive spending (C+I) decreases
3. G is therefore borrowing more
4. real interest rate increases
5. Dlf increases since the government needs loans OR Slf decreases since the banks are lending to the government

Central Bank Expansionary Monetary Policy

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

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

Central Bank Contractionary Monetary Policy

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

Foreign Economy has an Inflationary Gap

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

1. US EX decreases and IM increases
2. US AD decreases
3. PL decreases and RGDP decreases