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Resequence Fiscal and Monetary Policy-FOREX

Last updated 11 months ago

4 questions

1

1

1

1

Question 1

1.

Government enacts expansionary fiscal policy......

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

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

Interest sensitive spending (C+I) increases
Ms increases
Slf increases
UE decreases

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.....

UE increases
US G/S Relatively Less expensive and foreign G/S are relatively more expensive
US EX decreases and IM increases

UE increases

AD decreases

G inc and T dec

PL increases and Real Output increases

Central Bank Buys Bonds

Nominal interest rates decrease and Qm increases

AD increases

Real interest rates decrease and Qlf increase

Nominal interest rates increase and Qm decreases

PL decreases and RGDP decreases

US EX decreases and IM increase

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

Slf decreases

$ appreciates

Real interest rates increase and Qlf decrease

NX decreases causing a current account deficit

Central Bank Sells Bonds

Ms decreases

AD decreases

UE increases

S$ decreases OR D$ increases

$ appreciates

PL decreases and RGDP decreases

Foreign Economy has high PL and high DI

S$ decreases and D$ increases

US AD decreases

US Nx decreases causing a Current Account deficit

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