State in brief about the term - Nash equilibrium

For the foreign country its reaction function cuts its indifference curves where they are vertical. Both these reaction functions are upward sloping. For Nash equilibrium both countries must be simultaneously maximising their own welfare, given the expected behaviour of the other nation. This only occurs at point N where the two reaction functions intersect. Here both countries set an identical growth rate for their money supply, and their balances of payments are in equilibrium. Although neither country can improve on this Nash equilibrium acting independently, if they coordinate their monetary policies both can be made better off. This is because the Nash equilibrium is Pareto inefficient.