Question

Suppose the Federal Reserve and ECB both lower interest rates. How would a smaller economy (such as Switzerland) be affected, if its central bank keep its interest rates unchanged? Be sure to discuss the impacts on the value of the country's currency, trade balance, and economic output. In contrast, what would happen to the small economy if its central bank lowered interest rates?

Answer 1

if the  Federal Reserve and ECB both lower interest rates and  a smaller economy (such as Switzerland) central bank keep its interest rates unchanged then the small country will attract a lots of foreign fund as the rate of interest in that country is higher than others. this way the demand for the small countrys currency will increase and will make is stronger , resulting in a possitive trade balance for the country and the economic output will also increase. if the small economy will lower the interest rate then it will not have much of an impact on the other nations but the country will face a currency outflow which will make the currency value go down.