Imported goods in order to reduce our trade deficit

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Reference no: EM131169521

In a recent speech, Fed Vice Chair Stan Fischer, made two points:

(1) Raising tariffs on imported goods in order to reduce our trade deficit with other countries, (i.e. NXUSA <0) while it sounds good, is unlikely to actually impact the trade deficit at all, and will most likely harm the U.S. export sector.

(2) Perhaps the most direct way to reduce our trade deficit is to increase U.S. income taxes, TUSA, while persuading our trading partners to reduce their income taxes, Tpartners . Use the small open economy model, equations or graphs, to explain Vice Chair Fischer’s reasoning. In order to get credit you must use the small open economy model.

Reference no: EM131169521

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