What effect will each of the following events be likely to have on the balance of payments of the US

Focus only on impacts that occur as a direct result of each event. Be as specific as oyu can about where in the balance of payments the effect will occur (ie. net exports, net investment income, or the balance on the private financial account)

a. suppose the US dollar falls against the Canadian dollar and Mexican peso.

b. suppose the us economy is in equilibrium with stable output and our unemployment rate is well below the NAIRU. to stop rising inflation, the US raises personal income tax rates.

What effect will each of the following events be likely to have on the balance of payments of the US?...?credit union

a. A falling currency makes trade deficit smaller, so the balance of payements becomes less negative at net eports increases. A lower dollar makes imprts more expensive, so less are bought while at the same time, a lower dollar makes exports cheaper for foreignors, so exports go up. This is why the US trade deficit has been shirinking for about a year now. Imports have grown very slowly while exports have been booming.

b. Question B makes a soley Kensian assumption, that raising income taxes will lower inflation. Assuming that taxes only effect the demand side of the equation (which isnt true in reality), the an increase in taxes would have the following effects:

Private consumption would decrease so imports decrease. However, at the same time, lower inflation means the currency loses less value relative to other currencies so exports would decrease as well.

In realtiy, there is a supply side effect as well, so even though AD decreased when taxes go up, AS also goes down. The result is higher inflation and lower growth if the AS shift is reater then the shift in AD. This was what happened in the 1970%26#039;s. When Reagan put his tax vut sin place, the Kensyans who only consider AD and this question is making its assumptions on (that higher taxes reduce inflation), stated that this would only increase inflation as this would increase private consumption. However, in reality there is a supply side effect, so what happened was that even though AD increased, AS increased more when taxes were cut and inflation fellf rom about 13% to 4% in a matter of two years while at teh same time seeing increased output.

What effect will each of the following events be likely to have on the balance of payments of the US?...?

loan

a falling dollar makes every import more expensive

thus if we are a net importing country we pay more and have

more inflation

the dollar has been getting hammerred and the fed wants to lower rates to kill it some more, we are all financially doomed