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    Fiscal and monetary expansion

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    After 1985, the United States asked Germany and Japan to adopt fiscal and monetary expansion as ways of increasing foreign demand 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.

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    a) Fiscal expansion:
    By raising government expenditure, domestic demand will rise with government spending, which will result in an increase in imports of US output.

    By reducing the tax rate, domestic demand will rise with more disposable ...

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