Interaction between monetary fiscal policy Model: monetary fiscal policy variables ( M, G and T)are exogenous Real world Monetary policymakers may adjust M in response to changes in fiscal policy or vice versa Such interaction may alter the impact of the original policy change CHAPTER 11 Aggregate Demand Il slide 6CHAPTER 11 Aggregate Demand II slide 6 Interaction between monetary & fiscal policy ▪ Model: monetary & fiscal policy variables (M, G and T ) are exogenous ▪ Real world: Monetary policymakers may adjust M in response to changes in fiscal policy, or vice versa. ▪ Such interaction may alter the impact of the original policy change