題組內容

(3) The COVID-19 crisis is having a devastating effect on all economic sectors. Suppose that governments around the world begin to engage in expansionary fiscal policy (run large budget deficits) in order to stimulate economic activity in their countries. The fiscal expansion in the rest of the world would raise the world interest rate and lower domestic investment. As a result, the exchange rate will depreciate and the trade balance will move toward surplus. (Assume that the country starts from a position of trade balance.)