The currency of the U.S. is dollar. In 2005, the U.S.A. developed a balance-of-
payment deficit with Thailand as a result of an unanticipated decrease in
exports: Thai citizens cut back on the purchase of U.S. goods. Assume the U.S
is operating under a system of fixed exchange rates.
a. How does the drop in exports affect the market for dollars? Identify the
b. How must the government of the U.S act to maintain the value of
c. If originally the U.S were operating at full employment (potential
d. The chief economist of the U.S. suggests an expansionary monetary
deficit graphically.
dollar?
GDP), what impact would these events have on its economy, explain
your answer.
policy to restore full employment; the secretary of commerce suggest a
tax cut. Given the fixed exchange rate system, describe the effect of
these two policy options on the U.S. current account.