As Special Adviser for International Economic Policy,you Have Been Called

Essay

As special adviser for international economic policy,you have been called in to advise the President.For domestic reasons,the President has decided to attempt to stimulate the economy with a combination of increased deficit spending (expansionary fiscal policy)and loose money (expansionary monetary policy).Domestic considerations are the dominant factor in this decision,but your advice is sought as to the likely international consequences of this action.Of particular interest is the effect of this policy initiative on exchange rates and the trade balance.Give a complete explanation of the likely net effect of this policy.Include in your discussion the most important ways expansionary fiscal and monetary policy can affect exchange rates and the trade balance and also the separate net effects of expansionary fiscal and monetary policy respectively.