If Corporate Downsizing and Lack of Job Security Cause Consumers

question 6

Essay

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?
a.Use the basic version of 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
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 domestic economy's trade balance.

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Definitions:

Z-Scores

Standardized scores that indicate how many standard deviations an element is from the mean of its data set.

Standard Deviations

A measure of the amount of variation or dispersion of a set of values, indicating how much the values in the set depart from the mean.

Z-Scores

Standardized scores that indicate by how many standard deviations an element is from the mean.

Z-Score

Another term for standard score, indicating the number of standard deviations a data point is from the mean of its distribution.