A If Corporate Downsizing and Lack of Job Security Cause

question 15

Essay

a. If corporate downsizing and lack of job security cause consumers to spend less and save more, what will be the impact on the exchange rate and trade balance? Use the long-run model of a small open economy to illustrate graphically the impact of this decline in consumer confidence on the exchange rate and the trade balance. Assume 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 a decline in consumer confidence on the exchange rate and the U.S. trade balance.

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Definitions:

Substance Abuse

Diagnosis given in the DSM-IV when a person’s recurrent substance use leads to significant harmful consequences, as manifested by a failure to fulfill obligations at work, school, or home; the use of substances in physically hazardous situations; legal problems; and continued use despite social and legal problems.

Substance Abuse

The dangerous use of substances that affect the mind, including both alcohol and illegal drugs.

Uncontrolled Anger

Intense feelings of anger that are difficult to manage or control, often leading to aggressive behavior or confrontation.

Hallucinations

Perceptual experiences that are not real.