Suppose that the International Monetary Fund (IMF) is concerned about currency depreciation in a small open economy
Use the basic version of our exchange-rate model for your answers
||What type of fiscal policy should the IMF propose to the government of the small open economy to generate a currency appreciation?
||Illustrate graphically the impact of the IMF proposal on the exchange rate of the small open economy.
||What will happen to the trade balance of the small open economy, assuming that it started from a position of balanced trade?