by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Fiscal Policy Affects Trade Balances? Government budget balances can affect the trade balance. A net inflow of foreign financial investment always accompanies a trade deficit, while a net outflow of financial investment always accompanies a trade surplus. One...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Government Borrowing?When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How do Exchange Rates Affect Budget and Trade Deficits? Exchange rates can also help to explain why budget deficits are linked to trade deficits. International financial investors, as a group, will demand more U.S. dollars on foreign exchange markets to purchase the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does Fiscal Policy Affect Interest Rates? Because fiscal policy affects the quantity that the government borrows in financial capital markets, it not only affects aggregate demand—it can also affect interest rates. In the chart below, the original equilibrium...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Do Politics Affects Discretionary Fiscal Policy? A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. Some...
