International Dimensions of Monetary and Fiscal Policies

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International Dimensions of Monetary and Fiscal
Policies

• Do policy decisions in the U.S. have more or less
  international consequences than other countrys
  polices?
• 17.A. The Ambiguous International Goals of
  Macroeconomic Policy
• 17.B. Monetary and Fiscal Policy with Fixed
  Exchange Rates
• 17.C. Monetary and Fiscal Policy with Flexible
  or Partially Flexible Exchange Rate Regimes
• 17.D. International Phenomena and Domestic Goals

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17.A. The Ambiguous International Goals of
Macroeconomic Policy

• Is there general agreement about what a country
  should do domestically with policy?
• Is there general agreement about what a country
  should do internationally with policy?
• 17.A.1. The Exchange Rate Goal
• 17.A.2. The Trade Balance Goal
• 17.A.3. International vs. Domestic Goals

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17.A.1. The Exchange Rate Goal

• Who benefits from a high exchange rate?
• Who is hurt?
• Who benefits from a low exchange rate?
• Who is hurt?
• Are there economists who think that a country
  shouldnt pursue any exchange rate policy?

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17.A.2. The Trade Balance Goal

• Do we consume more with a trade deficit or a
  trade surplus?
• How do we pay for a trade deficit?
• What can we buy with the proceeds of a trade
  surplus?
• What will happen to our trade balance if
  foreigners want to buy our assets?

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17.A.3 International vs. Domestic Goals

• Which do economists and politicians agree more
  on, domestic or international goals?
• Which is the public more interested in, domestic
  or international goals?
• Given these two answers, which goals are more
  likely to be emphasized?

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17.B. Monetary and Fiscal Policy with Fixed
Exchange Rates

• 17.B.1. Increase the Private Demand for Francs
  via Contractionary Monetary Policy
• 17.B.2. Decrease the Private Supply of Francs
  via Contractionary Monetary and Fiscal Policy

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17.B.1. Increase the Private Demand for Francs
via Contractionary Monetary Policy
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17.B.2. Decrease the Private Supply of Francs
via Contractionary Monetary and Fiscal Policy
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17.C. Monetary and Fiscal Policy with Flexible
or Partially Flexible Exchange Rate Regimes

• Does the U.S. currently have a fixed or flexible
  exchange rate system?
• 17.C.1. Monetary Policys Effect on Exchange
  Rates
• 17.C.2. Monetary Policys Effect of the Trade
  Balance
• 17.C.3. Fiscal Policys Effect on Exchange Rates
• 17.C.4. Fiscal Policys Effect of the Trade
  Deficit

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17.C.1. Monetary Policys Effect on Exchange
Rates

• Expansionary monetary policy puts more or less
  domestic money in circulation?
• What does contractionary policy do?
• If there is more domestic money in circulation,
  what will happen to the amount of foreign
  currency that people will give up to get that
  domestic currency?
• What does this tell you about exchange rates?

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17.C.2. Monetary Policys Effect of the Trade
Balance

• What does expansionary monetary policy do to
  domestic prices? Domestic income?
• What does contractionary policy do?
• What will that do to imports?
• What effect will that have on the trade balance?

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17.C.3. Fiscal Policys Effect on Exchange Rates

• What does expansionary fiscal policy do to
  domestic income?
• What does contractionary fiscal policy do?
• What does that do to domestic imports?
• What does that do to domestic prices?
• Are the effects of those two things on exchange
  rates the same?

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17.C.4. Fiscal Policys Effect of the Trade
Deficit

• What does expansionary fiscal policy do to
  domestic prices? Domestic income?
• What does contractionary policy do?
• What does that do to imports?
• What effect will that have on the trade balance?

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17.D. International Phenomena and Domestic Goals

• 17.D.1. International Monetary and Fiscal
  Coordination
• 17.D.2. Coordination Is a Two-Way Street
• 17.D.3. Crowding Out and International
  Considerations

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17.D.1. International Monetary and Fiscal
Coordination
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17.D.2. Coordination Is a Two-Way Street
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17.D.3. Crowding Out and International
Considerations