A Suppose That Governments Around the World Begin to Engage

question 37

Essay

a. Suppose that governments around the world begin to engage in expansionary fiscal policy (run large budget deficits) in order to stimulate economic activity in their countries. Use the long-run model of a small open economy to illustrate graphically the impact of this expansionary fiscal policy by foreigners on the U.S. exchange rate and the trade balance. Assume that the country starts from a position of trade balance, i.e., exports equal imports. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the new
long-run equilibrium values.
b. Based on your graphical analysis, explain the predicted impact of the foreign expansionary fiscal policy on the
U.S. exchange rate and the U.S. trade balance.

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Definitions:

Increased Interaction

a rise in the level of communication or engagement between entities or individuals.

Office Design

The arrangement and styling of the workplace, including spatial layout and choice of furnishings, intended to optimize productivity and wellbeing.

Cohesiveness

The degree to which members of a group or team are attracted to each other and motivated to stay in the group.

Highly Cohesive Teams

Groups of individuals who exhibit a strong sense of unity and commitment towards achieving shared goals, often resulting in higher productivity and morale.