Scenario 32-1

During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits.
-Refer to Scenario 32-1. This change in the deficit causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Question

Scenario 32-1
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During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits.
-Refer to Scenario 32-1. This change in the deficit causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Quizplus · Accepted Answer

The Answer of Scenario 32-1
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During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits.
-Refer to Scenario 32-1. This change in the deficit causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Scenario 32-1 ​

Scenario 32-1