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ECN-327 Ch. 6 notes 007

ECN-327 Ch. 6 notes 007 - [13183...

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Unformatted text preview: [13183]? TM‘T-«u .nd3v5*mu+ .MLchanfsm Find em} Flam“; Rq‘l’bs WII‘IM F‘iQ EgghqnwEQ‘l'fij‘ Q S+EMU1Q+2UL MafifiTAR-fl Poucq ‘ UL)?“ QOT ‘ (2. duo; *L‘L. den¢4+m in+ms+ Far-rt, .Lg'l” ring-kqat Lei” Cause. ‘HML Cnun‘l'ry +02 )oSL‘ .M-anq-Honal (GUM—.5 Cq‘fld Guam-1' ‘m “an. bq.\¢-n(~l_, op Payne/Hi if ‘Hvuwn Sn+o ate-pidf‘. ' \n.q $.99"... FLEX-\N—E Ezakqnjg, 2441. 375% (NO ln+dn¢i~ian¢( 2,40%»- . ‘\’\~¢_, EE—OfiETARj Pour-.1 shmolas 31%”th om anus Serial-7041 and/Icing! anti ‘HNL CACQMROJL— f'a'hL'wG ‘HAL. Aouaf‘ drors [Unfit Sonata, 4110‘ 9 939 [i485] ' bureau‘s we. 00% again in balancL_ he“; Cam-H Hakim :nle . 4qu can, F‘sflflp Pa'uco “55¢ Con+ro\ auu’ HOLL ln+¢f¢5+ Era-+1. THE \S " LM MODEL is Q EMA“. OPEN Emma»: W Th. %m\a-u.. ac (Pagan-ks (Lon '02,, ha Lauri-'Lrium oNLq 0,-1— q domcshc. in-hnfi- rock; (F\ +an+ is figuaf 1173 Ha.— lordsh‘m‘vgi- TM. Pmdnsrs NHL Fuel) EXLHAHGE Knres Monetary Policy Is lmpotent Under Fixed Exchange Rates Loss of internationai reserves causes central bank to tighten, reversing previous expansion Domestic interest rate (r) Enitiai monetary expansion shifts LM to right Real income (Y) M 0N ETA RY Ex9ANSwN Figure {Sufi Effect of an Increase in the Money Supply with Fixed Exchange Rates The increase in the real money supply initially shifts the LM curve rightward, from LMO to LMl. However, the decline in the interest rate at point El causes capital outflows and a loss of foreign exchange reserves. This reaction reduces Eoe money supply, which continues until the LM curve shifts back to LMU and the economy moves back to point EU. 4'23 Hull. MMVFm-I find‘ Sllqufg ...
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