#### 21.2.1 The four-field-graphic

In order to display the three connected 2d graphics, we use a variation of the four-field graphic. Here, axes lying parallelly above or next to each other have the same variable. The $\mathit{yy}$-field at the bottom right is only used for one-to-one transmission of the $y$-value and has no independent function.

• Domestic goods market: The BP-line indicates $r,y$ combinations that are consistent with the BoP equilibrium. It has a positive slope, since lower interest rate $\to$ smaller capital inflow $↔$ smaller CA deficit/ higher surplus lower GDP (lower net imports)
• $45{\phantom{\rule{0.3em}{0ex}}}^{\circ }$ line
• International trade: The TT line indicates $S,y$ combinations that are consistent with the CA (current account) equilibrium. It has a positive slope, since higher GDP $\to$ current account falls (consumption effect) higher exchange rates (depreciation) $\to$ current account rises
• International capital market: The FF line indicates $r,S$ combinations that are consistent with the BoP equilibrium. It has a negative slope, since lower interest rate $\to$ smaller capital inflow ($K↓$) ($B↑$) smaller CA deficit/ higher surplus $↔$ higher exchange rates (depreciation)

(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743
E-mail: Bauer@uni-trier.de
URL: https://www.cbauer.de