Chapter 18 - Wiley

TM–18-1 Figure 18-1 Swan Diagram

R II Surplus inflation

R3

EE J'

Exchange rate

C''

R2

I Surplus unemployment

N

III Deficit inflation

F C'

J

R1

C

H

YY

IV Deficit unemployment 0

D1

D2

D3

D

Domestic expenditures or absorption

Transparency Masters t/a International Economics, 6E by Dominick Salvatore

© 1998 Prentice-Hall, Inc. A Simon & Schuster Company Upper Saddle River, NJ 07458

TM–18-2 Figure 18-2 Equilibrium in the Goods and Money Markets and in the Balance of Payments

BP F LM

16

Rate of interest (i)

14

Z

E 10

U

5

IS

0

YE = 1000

YF = 1500

National income (Y )



TM–18-3 Figure 18-3 Fiscal and Monetary Policies from Domestic Unemployment and External Balance

i

BP

LM 9 LM

F 16

Z

E

10

IS 9

U

5

IS

0

500


YE 51000

YF 51500

Y


TM–18-4 Figure 18-4 Fiscal and Monetary Policies from Domestic Unemployment and External Deficit

i

BP

IS 9

LM 9

F

18

LM

IS Z B9

13

10

B

IS 9

E

IS

0 Transparency Masters t/a International Economics, 6E by Dominick Salvatore

700

YE 51000

YF 51500

Y


TM–18-5 Figure 18-5 Fiscal and Monetary Policies with Elastic Capital Flows

i LM LM 9

BP

F 12

10

B9 B E

IS9

IS

0

500


YE 51000

YF 51500

Y


TM–18-6 Figure 18-6 U.S. Current Account and Budget Deficits as Percent of GDP, 1980–1995 % of GDP

0.4 0.0 –0.4

Current Account Balance

–0.8 –1.2 –1.6 –2.0 –2.4 –2.8 –3.2 –3.6

Government Budget

–4.0 –4.4 –4.8

Years 1980 Transparency Masters t/a International Economics, 6E by Dominick Salvatore

1982

1984

1986

1988

1990

1992

1994

1996 © 1998 Prentice-Hall, Inc. A Simon & Schuster Company Upper Saddle River, NJ 07458

TM–18-7 Figure 18-7 Fiscal and Monetary Policies with Perfect Capital Mobility

i LM LM 9 E9 12.5

F

E 10

BP

7.5

E0 IS 9 IS

0


YE 51000

YF 51500

Y


TM–18-8 Figure 18-8 The IS–LM–BP Model with Flexible Exchange Rates

i BP LM 14

Z

BP 9 LM 0

E E9

10 9

LM 9

U

5

IS 9 IS

0


YE 51000

YE 9 51400 YF 51500

Y


TM–18-9 Figure 18-9 Adjustment Policies with Perfect Capital Flows and Flexible Exchange Rates

i (%)

LM LM 0 LM 9

E9 12.5

F

E 10.0

BP

E0

7.0

IS 9 IS

0


YE 51000

YF 51500

Y


TM–18-10 Figure 18-10 Effective Market Classification and the Policy Mix

i IB

Monetary policy (interest rate)

I Unemployment surplus

II Inflation surplus

A9

EB

A0 F rE

A

C2 C 91 C

C1

III Inflation deficit

IV Unemployment deficit C 92 0

GE

G

Fiscal policy (government expenditures)



TM–18-11 Table 18-1 U.S. Macroeconomic Data, 1980–1995

1. Growth of real GDP (percent per year) 2. Growth of money supply (percent per year) 3. Budget deficit (as a percentage of GDP) 4. Interest rate (percent per year) 5. Inflation rate (percent per year) 6. Effective exchange rate (foreign currencies per dollar, 1990 5 100) 7. Current account deficit (as a percentage of GDP)

1. Growth of real GDP (percent per year) 2. Growth of money supply (percent per year) 3. Budget deficit (as a percentage of GDP) 4. Interest rate (percent per year) 5. Inflation rate (percent per year) 6. Effective exchange rate (foreign currencies per dollar, 1990 5 100) 7. Current account deficit (as a percentage of GDP)

1980

1981

1982

1983

1984

1985

1986

1987

20.3

2.5

22.1

4.0

6.8

3.7

3.0

2.9

4.9

4.9

7.4

7.7

8.8

13.1

17.4

0.3

1.4

1.1

3.5

4.1

3.0

3.2

3.5

2.6

11.4

14.1

10.7

8.6

9.5

7.5

6.0

5.8

13.5

10.3

6.1

3.2

4.3

3.5

1.9

3.7

108.0

118.2

130.9

135.7

145.0

149.9

122.0

107.8

20.1

20.2

0.4

1.3

2.6

3.0

3.4

3.5

1988

1989

1990

1991

1992

1993

1994

1995

3.8

3.4

1.3

21.1

2.7

2.3

3.5

2.0

4.8

1.0

5.0

8.6

11.7

9.7

0.1

20.9

2.1

1.7

2.7

3.3

4.4

3.6

2.3

2.0

6.7

8.1

7.5

5.4

3.4

3.0

4.2

5.5

4.1

4.8

5.4

4.2

3.0

3.0

2.6

2.8

100.4

104.8

100.0

98.4

96.5

99.4

97.6

91.7

2.5

1.9

1.6

0.1

1.0

1.5

2.2

2.0

Source: Organization for Economic Cooperation and Development, Economic Outlook (Paris, December 1996), and International Monetary Fund, International Financial Statistics (Washington, D.C.: 1996).



TM–18-12 Table 18-2 Direct Controls on International Transactions by IMF Members in 1996

Type of Restrictions A. Multiple exchange rates 1. For some or all capital and service transactions 2. More than one rate for imports 3. More than one rate for exports 4. Import rates different from export rates B. Payments restrictions 1. For current account transactions 2. For capital transactions C. Cost-related import restrictions 1. Import surcharges 2. Advance import deposits D. Surrender or repatriation requirements for export proceeds

Number of Countries 28 22 22 22 59 126 43 10 217

Source: International Monetary Fund, Exchange Arrangements and Exchange Restrictions: Annual Report (Washington, D.C.: IMF, 1996), pp. 546–551.



TM–18-13 Figure 18-11 Derivation of the IS Curve

i (interest rate) IV

I

E3

E 10

U3

U 5

IS I(i)1X Injections

0

650

450

500

450

YE 51000

YF 51500

Y Income

E1

E2 650

U2 45° III


U1 Leakages

S(Y)1M(Y)

II


TM–18-14 Figure 18-12 Derivation of the LM Curve

i

I

IV

Z3

E3

LM Z

15

E

10

ML

ML

800 400

200

0

YE = 1000

400

YF = 1500

Y

E1

E2 MS

Z1

600

Z2 MT 800

III

II

MT



TM–18-15 Figure 18-13 Derivation of the BP Curve

i

IV

BP

I

F3 F

16

E3

E 10

SC SC (+ inflows)

0 + 75 0

Y YE = 1000

YF = 1500

150 0

E1

E2 –75

F2 45°

F1

III


X–M

X–M II
