Question

Assume the small open economy starts from a position of a balanced trade. Giving reasons, clearly...

Assume the small open economy starts from a position of a balanced trade. Giving reasons, clearly explain what the effect of an expansionary fiscal policy abroad (by a large open economy) will be on the trade balance of a small open economy? You may need to draw diagrams to determine the effect. However, do not provide diagrams with the answer. (100 words maximum)

Homework Answers

Answer #1

Effect of Expansionary fiscal policy abroad on trade balance of of small economy will be -

  • Due to expansion of fiscal policy abroad there will de trade deficit in small open economy
  • There will also be appreciation in the real exchange rate in small open economy
  • Since due to change fiscal policy there will be change saving Investment curve as it shifts leftward , vertically.
  • This will lead to fall in the Domestic currency which Invested abroad.
  • And the fall in supply in domestic currency will lead to rise in real exchange rate from equlibrium
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume the small open economy starts from a position of a balanced trade. Giving reasons, clearly...
Assume the small open economy starts from a position of a balanced trade. Giving reasons, clearly explain what the effect of an expansionary fiscal policy abroad (by a large open economy) will be on the trade balance of a small open economy? You may need to draw diagrams to determine the effect. However, do not provide diagrams with the answer. (100 words maximum)
A small open economy with a floating exchange rate is in recession with balanced trade. If...
A small open economy with a floating exchange rate is in recession with balanced trade. If policymakers want to reach full employment while maintaining balanced trade, what combination of monetary and fiscal policy should they choose? Use a graph and explain the effects of each policy.
You are the chief economic adviser in a small open economy with a floating exchange rate....
You are the chief economic adviser in a small open economy with a floating exchange rate. Your boss, the president of the country, wishes to increase the level of output in the short run in order to win the upcoming election. Do you recommend monetary or fiscal policy? Should the policy be expansionary or contractionary? Explain in detail the reasons for your proposed policy using a Mundell-Flemming model. Do not provide diagrams with the answer. (100 words maximum)
In a small open economy, starting from a position in which net exports are equal to...
In a small open economy, starting from a position in which net exports are equal to zero (i.e., balanced trade), if the government increases government expenditure, this produces a tendency toward a trade ......…..and ...........net capital outflow.
Suppose that Jamaica is a small, open economy. A war breaks out abroad and, as a...
Suppose that Jamaica is a small, open economy. A war breaks out abroad and, as a result, Jamaican firms become uncertain about the future and decide to delay some investment projects. 1) Explain what effect this event would have on the Jamaican economy. You do not need to draw the graph, but you do need to describe which curves move and in what direction. No points will be given for answers without an explanation. 2) How would the following variables...
Assume that the world works according to the Classical model. In a small open economy, output...
Assume that the world works according to the Classical model. In a small open economy, output is produced according to a Cobb-Douglas production function, consumption is equal to C=40+0.6(Y-T) and the investment function is I=280-10r. You know that the output produced is Y=900, government spending is G=150, taxes are T=90 and that the world real interest rate is 4% (r*=4). In all the questions below, make sure to explain your answers and show all your work. a. Compute: i. Private...
Please don't copy and paste from other website. Outline the key fiscal and monetary policy actions,...
Please don't copy and paste from other website. Outline the key fiscal and monetary policy actions, respectively, of New Zealand against the COVID-19 shocks(already outlined below) use appropriate macroeconomic models and theories covered in this course to explain their expected impacts. Discuss any limitations of these policy actions. (~600 words) TIPS: ⮚ If there are many policy actions, you could list all of them but focus on the key ones for discussion. ⮚ The government may take multiple actions (e.g....
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind of your average Argentine, who remembers the tough times and hyperinflation of the 1980s, the events of 2001 and 2002 have brought fiscal policy back to the forefront of public concern. Though the early 1990s may have been characterized by financial optimism, Argentina has been in a recession since Brazil's 1998 monetary crisis sent shockwaves across the regional and global markets. In early 2002,...
1. The failure of the new supply chain system affected Nike adversely. What were the reasons...
1. The failure of the new supply chain system affected Nike adversely. What were the reasons for the failure and how did the breakdown harm Nike? 2. What are the important elements to be kept in mind while implementing a new system in an organization? What is the importance of a good working relationship between partners and the sharing of responsibility in implementing critical projects? What mistakes did Nike and i2 make? 3. comment on the lessons learned and the...
What are your top 3 take aways from this article? Technology is no longer just for...
What are your top 3 take aways from this article? Technology is no longer just for geeks. The internet has changed everything, including marketing. Be they small, medium or large, social media grants all companies an equal playing field on which to organically reach new customers. However, success will always ride on the marketing strategy employed. Obviously, larger companies have the advantage of bigger budgets and more resources. But that doesn’t mean social media for small business owners can’t compete...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT