Switching the U.S.policy mix to an easier fiscal and tighter monetary policy ________ the U.S.interest rate,leading to ________ of the dollar,which puts ________ long-run pressure on the U.S.foreign trade surplus.

Question

Quizplus · Accepted Answer

Easier fiscal policy combined with tighter monetary policy typically leads to higher interest rates, which attract foreign capital and lead to an appreciation of the dollar. This appreciation makes U.S. goods more expensive abroad and foreign goods cheaper in the U.S., thus exerting downward pressure on the U.S. foreign trade surplus.