Author Question: Explain and show graphically the effect of a decrease in U.S. budget deficits that decrease U.S. ... (Read 45 times)

Tazate · **on:** Jun 29, 2018

Explain and show graphically the effect of a decrease in U.S. budget deficits that decrease U.S. interest rates on the demand and supply of U.S. dollars for euros.

What will be an ideal response?

Question 2

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

Indicate whether the statement is true or false

wshriver · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A decrease in U.S. interest rates would decrease the desire to invest in financial assets in the United States relative to the rest of the world. The demand for dollars would fall, causing the exchange rate for the dollar to fall. The lower exchange rate would increase net exports, leading to a smaller current account deficit.

Answer to Question 2

TRUE