1. Slide 16-1Copyright © 2003 Pearson Education, Inc. Figure 16-9: How the Economy Reaches Its Short-Run Equilibrium AA Y1Y1 E1E1 1 Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together DD 3 E3E3 2E2E2 Output, Y Exchange Rate, E

2. Slide 16-2Copyright © 2003 Pearson Education, Inc.  模型目的。  內生變數：決定模型兩軸。  行為法則：畫出模型曲線。  均衡：決定均衡之內生變數。  外生衝擊 判斷是否為外生變數改變？ 判斷此外生變數之改變將影響哪些行為法則？ 判斷此外生變數之改變造成行為法則何種影響？ 學習經濟模型五步驟 外外生衝擊

3. Slide 16-3Copyright © 2003 Pearson Education, Inc. Temporary Changes in Monetary and Fiscal Policy  Two types of government policy: Monetary policy –It works through changes in the money supply. Fiscal policy –It works through changes in government spending or taxes. Temporary policy shifts are those that the public expects to be reversed in the near future and do not affect the long-run expected exchange rate. Assume that policy shifts do not influence the foreign interest rate and the foreign price level.

4. Slide 16-4Copyright © 2003 Pearson Education, Inc. DD Figure 16-10: Effects of a Temporary Increase in the Money Supply Output, Y Exchange Rate, E AA 2 Y2Y2 E2E2 2 AA 1 1 E1E1 Y1Y1 Temporary Changes in Monetary and Fiscal Policy 3 說明 說明 E3E3

5. Slide 16-5Copyright © 2003 Pearson Education, Inc. Increase in U.S. real money supply Expected return on euro deposits The Equilibrium Interest Rate: The Interaction of Money Supply and Demand Figure 14-8: Effect on the Dollar/Euro Exchange Rate and Dollar Interest Rate of an Increase in the U.S. Money Supply 返回 返回 E 2 $/€ 2'2' U.S. real money holdings Rates of return (in dollar terms) Dollar/euro exchange Rate, E $/€ 0 Return on dollar deposits L(R $, Y US ) E 1 $/€ 1'1' R1$R1$ 1 M 1 US P US R2$R2$ 2 M 2 US P US

6. Slide 16-6Copyright © 2003 Pearson Education, Inc. DD Figure 16-10: Effects of a Temporary Increase in the Money Supply Output, Y Exchange Rate, E AA 2 Y2Y2 E2E2 2 AA 1 1 E1E1 Y1Y1 Temporary Changes in Monetary and Fiscal Policy 3 說明 說明 E3E3

7. Slide 16-7Copyright © 2003 Pearson Education, Inc.  Monetary Policy An increase in money supply (i.e., expansionary monetary policy) raises the economy’s output. –The increase in money supply creates an excess supply of money, which lowers the home interest rate. –As a result, the domestic currency must depreciate (i.e., home products become cheaper relative to foreign products) and aggregate demand increases. Temporary Changes in Monetary and Fiscal Policy

8. Slide 16-8Copyright © 2003 Pearson Education, Inc. DD 1 Figure 16-11: Effects of a Temporary Fiscal Expansion Output, Y Exchange Rate, E AA DD 2 Y1Y1 E1E1 1 2 Y2Y2 E2E2 Temporary Changes in Monetary and Fiscal Policy 3 說明

9. Slide 16-9Copyright © 2003 Pearson Education, Inc. Y2Y2 Output Market Equilibrium in the Short Run: The DD Schedule Figure 16-5: Government Demand and the Position of the DD Schedule 返回 D = Y Y1 Y1 D(E 0 P*/P, Y – T, I, G 2 ) D(E 0 P*/P, Y – T, I, G 1 ) Y2 Y2 Output, Y Exchange rate, E Y1Y1 Aggregate demand curves 2 Government spending rises Output, Y Aggregate demand, D DD 1 E0E0 1 DD 2

10. Slide 16-10Copyright © 2003 Pearson Education, Inc. DD 1 Figure 16-11: Effects of a Temporary Fiscal Expansion Output, Y Exchange Rate, E AA DD 2 Y1Y1 E1E1 1 2 Y2Y2 E2E2 Temporary Changes in Monetary and Fiscal Policy 3 說明

11. Slide 16-11Copyright © 2003 Pearson Education, Inc.  Fiscal Policy An increase in government spending, a cut in taxes, or some combination of the two (i.e, expansionary fiscal policy) raises output. –The increase in output raises the transactions demand for real money holdings, which in turn increases the home interest rate. –As a result, the domestic currency must appreciate. Temporary Changes in Monetary and Fiscal Policy

12. Slide 16-12Copyright © 2003 Pearson Education, Inc.  Policies to Maintain Full Employment Temporary disturbances that lead to recession can be offset through expansionary monetary or fiscal policies. –Temporary disturbances that lead to overemployment can be offset through contractionary monetary or fiscal policies. Temporary Changes in Monetary and Fiscal Policy

13. Slide 16-13Copyright © 2003 Pearson Education, Inc. Figure 16-12: Maintaining Full Employment After a Temporary Fall in World Demand for Domestic Products Output, Y Exchange Rate, E DD 1 AA 1 YfYf Y2Y2 E2E2 2 DD 2 1 E1E1 Temporary Changes in Monetary and Fiscal Policy G(T )

14. Slide 16-14Copyright © 2003 Pearson Education, Inc. Figure 16-12: Maintaining Full Employment After a Temporary Fall in World Demand for Domestic Products Output, Y Exchange Rate, E DD 1 AA 1 YfYf Y2Y2 E2E2 2 DD 2 1 E1E1 3E3E3 Temporary Changes in Monetary and Fiscal Policy AA 2 MSMS

15. Slide 16-15Copyright © 2003 Pearson Education, Inc. Figure 16-13: Policies to Maintain Full Employment After a Money-Demand Increase AA 2 DD 1 Output, Y Exchange Rate, E AA 1 YfYf Y2Y2 E2E2 2 1E1E1 Temporary Changes in Monetary and Fiscal Policy MSMS

16. Slide 16-16Copyright © 2003 Pearson Education, Inc. Figure 16-13: Policies to Maintain Full Employment After a Money-Demand Increase AA 2 DD 1 Output, Y Exchange Rate, E AA 1 YfYf Y2Y2 E2E2 2 3 E3E3 1E1E1 Temporary Changes in Monetary and Fiscal Policy DD 2 G(T )