Consider an economy with a trade deficit (NX

Question:

Consider an economy with a trade deficit (NX<O)and with output equal to its natural level. Suppose that the inflation rate In the medium run is zero. Assume that the natural level Is unaffected by the real exchange rate What must happen to the real exchange rate over the medium run to eliminate the trade deficit? What must happen to domestic demand (C + I + G) the medium run? What government policies are available to reduce domestic demand in the medium run? Please use IS - LM-UIP diagrams and AS-AD diagram to illustrate the effect of the policies In the short run and in the medium run.

Economic Policies:

Economic policies can be explained as the set of actions or ideas that the government of the country implements in order to stabilize the economy. It includes policies related to taxes, level of spending, interest rates, and many others.

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To eliminate the trade deficit exchange rate should be increased so that the exports of the country increases. Increase in the exchange rate will also...

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What is Macroeconomics? - Definition & Principles

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Chapter 4 / Lesson 9
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Understand the definition of macroeconomics and what macroeconomics focuses on. Learn the principles of macroeconomics, including economic output, economic growth, unemployment, inflation and deflation, and investment.


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