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What Will Be the Effect of an Increase in Fiscal

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Essay

What will be the effect of an increase in fiscal expansion abroad by a large economy on the trade balance of a small open economy?


Definitions:

Open Market Operations

Open Market Operations involve the buying and selling of government securities by a central bank to control the money supply and interest rates in the economy.

Tight Monetary Policy

A central bank strategy aiming to slow economic growth by increasing interest rates and reducing the quantity of money in circulation.

Net Exports

The value of a country's total exports minus the value of its total imports, representing the trade balance.

Legal Reserve Requirement

A regulation set by central banks determining the minimum amount of reserves that must be held by a financial institution, usually a percentage of deposits.

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