Case I: Offshore Outsourcing

Imagine that you are an economist working for the Congressional Budget Office (CBO). You receive a letter from the chair of the Senate Budget Committee:

Dear CBO economist,

Congress is about to consider the president's request to cut country's offshore outsourcing by 50 percent. Before deciding whether to endorse the request, my committee would like your analysis. I wonder if you would advise us:

a. How cutting offshore outsourcing will affect the domestic investment, domestic interest rate, NCO, exchange rate, and net export in our country?

b. What do you think will happen to real GDP, unemployment, and the price level in our country?

c. Is there any chance for this new policy to trigger stagflation in our economy? In case, if that happens, what kind of coordinated fiscal and monetary policy would be recommended to change the situation?