Assume Lilliput is a small open economy. Predict what would happen to their trade balance, the real
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Question:
Assume Lilliput is a small open economy. Predict what would happen to their trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events.
a. There is an increase in consumption because consumer confidence improves.
b. An investment tax credit increases private domestic investment in new factories.
c. People in Lilliput start to prefer the clothing manufactured in Blefuscu over domestically produced textiles.
d. The central bank in Mildendo doubles the money supply (sprug).
e. New regulations restricting the use of credit cards increases the demand for money.
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