Essay
Suppose that the International Monetary Fund (IMF) is concerned about currency depreciation in a small open economy.
a.What type of fiscal policy should the IMF propose to the government of the small open economy to generate a currency appreciation?
b.Graphically illustrate the impact of the IMF proposal on the exchange rate of the small open economy.
c.What will happen to the trade balance of the small open economy, assuming that it started from a position of balanced trade?
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a.The IMF must propose expansionary fisc...View Answer
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