Suppose that the large industrial countries of the world are concerned about the depreciating currencies of a number of small open economies.
a. What type of fiscal policies must the large industrial countries undertake in order to promote currency appreciation in the small open economies?
b. Illustrate graphically the impact of the industrial countries' policies on the exchange rate of the small open economies.
c. What will happen to the trade balance of the typical small open economy, assuming that it starts from a position of balanced trade?

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The Answer of Suppose that the large industrial countries of the world are concerned about the depreciating currencies of a number of small open economies.
a. What type of fiscal policies must the large industrial countries undertake in order to promote currency appreciation in the small open economies?
b. Illustrate graphically the impact of the industrial countries' policies on the exchange rate of the small open economies.
c. What will happen to the trade balance of the typical small open economy, assuming that it starts from a position of balanced trade?

Suppose That the Large Industrial Countries of the World Are