1. Assume the United States has a standard flexible exchange rate regime with free flows of capital:
   2. All else equal, if the Federal Reserve increases the money supply and lowers interest rates, what will happen to the U.S. trade balance? Explain.
   4. All else equal, if Japanese citizens decide to divest their U.S. stock market holdings, what will happen to the U.S. trade balance? Explain.
   6. All else equal, if income in the U.S. increases, what will happen to the U.S. trade balance? Explain.

Answer rating: 100% (QA)

Answer 1 If the Federal Reserve increases the money supply and lowers interest rates all else equal the following will happen to the US trade balance ... View the full answer