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Fiscal policy and trade agreement clarification

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Why fiscal policy will be either more or less effective in an economy with a large foreign sector.

What is the importance of trade agreements? How is international trade related to the standard of living in the United States as opposed to a small industrial nation? Or of a developing nation?

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Fiscal policy and trade agreement clarification is given in the solution.

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Fiscal policy is less effective for an economy with a large foreign sector as it is concerned more with regulating taxes and changes in government's consumption and spending. The monetary policy is more important in this scenario as it has the ability to attract foreign capital with higher interest rates, or ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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