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?

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Definitions:

Aggressive Manner

Behavior characterized by assertiveness, dominance, and sometimes hostility, aimed at achieving one's objectives.

Blowing off Steam

An informal phrase describing the release of pent-up emotional or physical energy or stress.

Defense Mechanisms

Defense mechanisms are unconscious psychological strategies used by individuals to cope with reality and maintain self-image by reducing feelings of anxiety and stress.

Sigmund Freud

An Austrian neurologist and the founder of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.