Diagrams

Monetary Policy in Open Economy diagram

\uparrow i, \uparrow LM, \downarrow Y through:

• I

• \uparrow E -> \downarrow NX

Fiscal Policy in Open Economy diagram

\uparrow G, \rightarrow IS (or \uparrow Z), \uparrow Y through:

• \uparrow C, I,

• \downarrow NX (trade balance worsens)

IS-LM-IUP diagram

good-financial market equilibrium with E substituted by UIP

IS-LM-IUP effects diagram

• direct: \uparrow i, \downarrow I, \downarrow Z, \downarrow Y

• indirect: \uparrow i, \uparrow E, \downarrow NX, \downarrow Z, \downarrow Y

UIP diagram

Domestic demand diagram

• C+I+G

Demand for domestic goods

• C+I+G-\frac{IM}{\eta}+X

Trade balance diagram

• if at Y, Z>D, trade surplus (less imports, more exports)

• if at Y, Z<D, trade deficit (less exports, more imports)

• hence higher Y=less NX

M-L condition diagram (J-curve)

Upwards sloping yield curve diagram

Downwards sloping yield curve diagram

Flattening Yield curve

Defecit reduction graph short-run

Defecit reduction graph medium-run

Fiscal Policy in Open vs Closed Economy

1. open=effect on trade balance

2. Smaller multiplier effect of government spending on output: because 𝑍 is flatter than 𝐷.