Suppose That the Large Industrial Countries of the World Are

question 83

Essay

Suppose that the large industrial countries of the world are concerned about the depreciating currencies of a number of small open economies.
a.What type of fiscal policies must the large industrial countries undertake in order to promote currency appreciation in the small open economies?
b.Graphically illustrate the impact of the industrial countries' policies on the exchange rate of the small open economies.
c.What will happen to the trade balance of the typical small open economy, assuming that it starts from a position of balanced trade?

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Definitions:

Disinflation

A decrease in the rate of inflation, indicating a slowdown in the rate at which prices for goods and services increase.

Rate of Inflation

The rise in the average cost of goods and services across an economy over a specific period.

Recessions

Periods of economic downturn when output and employment are falling, typically defined as two consecutive quarters of declining gross domestic product.

Consumer Price Index

An index that calculates the overall average price of a range of consumer goods and services, which includes transportation, food, and healthcare provisions.