ECON 345 Study Guide - Midterm Guide: Foreign Exchange Market
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No credit without explanation (10 points each): countries cannot have permanent current account de cits. 20 points each: suppose you are working on the council of economic advisors. The economy is cur- rently in a recession, and you need to formulate a policy package to help get it out. However, for political reasons, you do not want to change the long-run distribution of income. The economy is in a recession, and you need to gure out how to get it out. The problem is, the economy is currently running large current account de cits, and so you do not want to make the current account de cit worse". Given this constraint, should you recommend monetary or scal expansion. Illustrate your answer with a graph if possible: the u. s. economy has recently been hit with a nancial crisis. At the same time, output has been declining and the exchange rate has been appreciating.
