Macro Cause and Effect

Higher interest rates

higher foreign investment; appreciation

Lower interest rates

lower foreign investment; depreciation

Higher interest rates in U.S.

↑ foreign capital inflow, ↑ demand for U.S. dollar, appreciation

U.S. dollar appreciates

↑ imports, ↓ exports, ↓ net exports, ↓ GDP

U.S. dollar depreciates

↓ imports, ↑ exports, ↑ net exports, ↑ GDP

Deflation happens

PL ↓, ↑ unemployment, ↓ spending

Inflation happens

PL ↑, purchasing power ↓, unemployment ↓ (employment ↑)

Stagflation happens

inflation ↑, unemployment ↑, ↓ consumer spending, ↓ investment

Recession happens

PL ↓, purchasing power ↑, unemployment ↑ (employment ↓)

Positive supply shock

↓ prices, ↑output, unemployment ↓

Negative supply shock

↑ prices, ↓output, unemployment ↑

Fed buys bonds

↑money supply, interest rates ↓

Fed sells bonds

↓ money supply, interest rates ↑

Expansionary monetary policy

↑ money supply, ↓ interest rates, ↑ investment, ↑ GDP, ↓ unemployment

Contractionary monetary policy

↓ money supply, ↑ interest rates, ↓ investment, ↓ GDP, ↑ unemployment

Expansionary fiscal policy

↑ G or ↓ T

Contractionary fiscal policy

↓ G or ↑ T

Reserve Requirement ↑

↓ excess reserves, ↓ money supply, ↓ lending

Reserve Requirement ↓

↑ excess reserves, ↑ money supply, ↑ lending

Discount rate ↑

↓ borrowing from Fed, ↓ money supply

Discount rate ↓

↑ borrowing from Fed, ↑ money supply

Gov spending ↑

↑ aggregate demand, ↑ GDP, ↓ unemployment

Gov spending ↓

↓ aggregate demand, ↓ GDP, ↑ unemployment

Taxes ↑

↓ disposable income, ↓ consumer spending, ↓ GDP

Taxes ↓

↑ disposable income, ↑ consumer spending, ↑ GDP

Trade deficit

↑ capital inflows to finance it, ↑ financial account surplus

Unemployment ↑

↓ consumer income, ↓ consumption, ↓ GDP

Full employment

actual GDP = potential GDP, unemployment = natural rate

Deficit spending ↑

interest rates ↑, appreciates