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Suppose That the International Monetary Fund (IMF) Is Concerned About

question 24

Essay

Suppose that the International Monetary Fund (IMF) is concerned about currency depreciation in a small open economy.
a. What type of fiscal policy should the IMF propose to the government of the small open economy to generate a currency appreciation?
b. Illustrate graphically the impact of the IMF proposal on the exchange rate of the small open economy.
c. What will happen to the trade balance of the small open economy, assuming that it started from a position of balanced trade?


Definitions:

Bidding Process

The procedure by which a contractor is selected to work on a project, usually involving submission of proposals and selection based on criteria such as price and capability.

Reconciliation

The process of ensuring that two sets of records or accounts are in agreement, often used in accounting to match transactions and balances.

Interest Charges

The costs incurred for borrowing money, calculated as a percentage of the total amount borrowed.

Management Reserves

Budgetary allocations set aside for unforeseen changes in the scope and cost of a project.

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