TM18-1 Figure 18-1 Swan Diagram

R
II Surplus inflation

EE J'

R3 C''
Exchange rate I Surplus unemployment

R2

F C'

III Deficit inflation

R1

J C H
IV Deficit unemployment

YY

D1

D2

D3

Domestic expenditures or absorption

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TM18-2 Figure 18-2 Equilibrium in the Goods and Money Markets and in the Balance of Payments

BP F
16 14 Rate of interest (i)

LM Z

E
10

U IS

YE = 1000

YF = 1500

National income (Y )

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

TM18-3 Figure 18-3 Fiscal and Monetary Policies from Domestic Unemployment and External Balance

BP F

LM LM

16

10

E IS

IS Y
1500

500

YE

1000

YF

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

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

TM18-4 Figure 18-4 Fiscal and Monetary Policies from Domestic Unemployment and External Deficit

IS

BP LM

18

LM

IS Z
13

B IS

10

IS Y
1500
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0
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700

YE

1000

YF

TM18-5 Figure 18-5 Fiscal and Monetary Policies with Elastic Capital Flows

i LM LM

F
12

BP

B B E

10

IS

IS

500

YE

1000

YF

Y
1500

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

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

TM18-6 Figure 18-6 U.S. Current Account and Budget Deficits as Percent of GDP, 19801995
% of GDP

0.4 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6 4.0 4.4 4.8 Years 1980
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Current Account Balance

Government Budget

1982

1984

1986

1988

1990

1992

1994

1996
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TM18-7 Figure 18-7 Fiscal and Monetary Policies with Perfect Capital Mobility

i LM LM E
12.5

E
10 7.5

F BP

E IS IS

YE

1000

YF

Y
1500

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

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

TM18-8 Figure 18-8 The ISLMBP Model with Flexible Exchange Rates

i BP LM
14

Z E

BP LM

10 9

LM

U IS IS Y
1500

YE

1000

YE

1400 YF

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

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TM18-9 Figure 18-9 Adjustment Policies with Perfect Capital Flows and Flexible Exchange Rates

i (%)

LM LM LM E
12.5

E
10.0

F BP

7.0

E IS IS

YE

1000

YF

Y
1500

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

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

TM18-10 Figure 18-10 Effective Market Classification and the Policy Mix

i IB I Unemployment surplus
Monetary policy (interest rate)

II Inflation surplus A

EB

F rE C
1

C2 C1

III Inflation deficit

IV Unemployment deficit C
2

GE
Fiscal policy (government expenditures)

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

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TM18-11 Table 18-1 U.S. Macroeconomic Data, 19801995

1980 1. Growth of real GDP (percent per year) 2. Growth of money supply (percent per year) 3. Budget decit (as a percentage of GDP) 4. Interest rate (percent per year) 5. Ination rate (percent per year) 6. Effective exchange rate (foreign currencies per dollar, 1990 100) 7. Current account decit (as a percentage of GDP) 0.3 4.9 1.4 11.4 13.5 1981 2.5 4.9 1.1 14.1 10.3 1982 2.1 7.4 3.5 10.7 6.1 1983 4.0 7.7 4.1 8.6 3.2 1984 6.8 8.8 3.0 9.5 4.3 1985 3.7 13.1 3.2 7.5 3.5 1986 3.0 17.4 3.5 6.0 1.9 1987 2.9 0.3 2.6 5.8 3.7

108.0 0.1 1988

118.2 0.2 1989 3.4 1.0 1.7 8.1 4.8

130.9 0.4 1990 1.3 5.0 2.7 7.5 5.4

135.7 1.3 1991 1.1 8.6 3.3 5.4 4.2

145.0 2.6 1992 2.7 11.7 4.4 3.4 3.0

149.9 3.0 1993 2.3 9.7 3.6 3.0 3.0

122.0 3.4 1994 3.5 0.1 2.3 4.2 2.6

107.8 3.5 1995 2.0 0.9 2.0 5.5 2.8

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

3.8 4.8 2.1 6.7 4.1

100.4 2.5

104.8 1.9

100.0 1.6

98.4 0.1

96.5 1.0

99.4 1.5

97.6 2.2

91.7 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).

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TM18-12 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. 546551.

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TM18-13 Figure 18-11 Derivation of the IS Curve

i (interest rate)
IV I

E3
10

U3
5

U IS

I(i) X
Injections 0 650 450 500

YE

1000

YF

1500

Y Income

450

E1

E2
650

U2
45 III Leakages II

U1

S(Y) M(Y)

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TM18-14 Figure 18-12 Derivation of the LM Curve

i
IV

LM Z

Z3

15

E3

10

ML
800 400 200 0

ML

YE = 1000

YF = 1500

400

E1 Z1 MT

E2 MS
600

Z2
800
MT

III

II

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TM18-15 Figure 18-13 Derivation of the BP Curve

IV

BP

F3
16

E3
10

SC SC (+ inflows)
0 + 75 0 150 0

Y YE = 1000 YF = 1500

E1 F1

E2 F2
45 III 75

XM
II

XM

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