by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How can Fiscal Policy Affect Trade Imbalances? If a nation is experiencing the inflow of foreign investment capital associated with a trade deficit because foreign investors are making long term direct investments in firms, there may be no substantial reason for...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are the risks of chronic large deficits in the United States? If a government runs large budget deficits for a sustained period of time, what can go wrong? According to a recent Brookings Institution report, a key risk of a large budget deficit is that government...
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 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
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...
