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