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:

Open Book Management

Practice of sharing financial information with employees and teaching them how to understand and use financial statements.

Financial Information

Data regarding the financial performance and position of an individual or entity, including statements, reports, budgets, and financial indicators.

Online Retail

Online retail involves selling goods or services to consumers via the internet, leveraging websites or digital platforms to facilitate transactions and deliveries.

Financial Information

Data regarding the monetary aspects of a company or individual, including income, expenses, assets, liabilities, and investments.