APMacro: Monetary Policy, Fiscal Policy, Exchange Rates

fiscal-policy-monetary-policy-exchange-rate     Changes in a nation’s monetary and fiscal policies affect its exchange rates and its balance of trade through the interest rate, income and the price level. Changes in the value of a country’s currency may affect the balance of trade and aggregate demand. The value of real output and price levels may also be affected. Domestic policies influence currency values, and currency values influence domestic policies. The complexity of the connection leads to careful evaluation of any change in domestic policy goals. Policy makers cannot ignore the international effects of changes in monetary and fiscal policies.

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