What about monetary expansion

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How would you analyze the use of monetary and fiscal policy to maintain internal and external balance under a floating exchange rate? The chapter described how the United States tried after 1985 to reduce its current account deficit by accelerating monetary growth and depreciating the dollar. Assume that the United States was in internal balance but external balance called for an expenditure- reducing policy la cut in the government budget deficit' as well as the expenditure switch-ing causal by currency depreciation. How would you expect the use of monetary expan-sion alone to affect the U.S. economy in the shoo and long runs? & After 1985 the United States asked Germany and Japan to adopt fiscal and monetary expansion as ways of increasing foreign dentand for U.S. output and reducing the American current account deficit. Would fiscal expansion by Germany and Japan have accomplished these goals? What about monetary expansion? Would your answer change if you thought different German and Japanese policies might facilitate different U.S. policies?

Reference no: EM131248327

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