What Will Be the Effect of Increase in Fiscal Expansion

question 31

Essay

What will be the effect of increase in fiscal expansion abroad (by a large economy) on the trade balance of a small open economy?

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Definitions:

Treasury Bills

Treasury Bills (T-Bills) are short-term U.S. government debt obligations with a maturity of one year or less, considered a safe investment due to government backing.

Financial Instruments

Contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Federal Government

A system of government where powers and responsibilities are divided between a national government and smaller administrative divisions.

TIPS

Treasury Inflation-Protected Securities (TIPS) are a form of U.S. Treasury securities designed to help investors protect against inflation, as their principal value adjusts with the inflation rate.