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 $\leftrightarrow$ smaller CA deficit/ higher surplus $\stackrel{S\mathit{fest}}{\leftrightarrow }$ lower GDP (lower net imports)
• $45{}^{\circ }$ 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) $\stackrel{\text{necessary to compensate}}{\underset{\text{so that }B\left(y,S\right)=0}{\leftrightarrow }}$ 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 ($K\downarrow$) $\stackrel{\text{necessary to compensate}}{\underset{\text{so that }B+K=0}{\leftrightarrow }}$ ($B\uparrow$) smaller CA deficit/ higher surplus $\leftrightarrow$ higher exchange rates (depreciation)