Q. An article in USA Today began "President Bush said Wednesday which the White House will shore up the sliding dollar by working to cut record budget also trade deficits."

a) According to the model in this chapter, would a reduction in the budget deficit reduce the trade deficit? Would it raise the value of the dollar? Elucidate.

b) Assume which a reduction in the budget deficit made international investors more confident in the U.S. economy. Elucidate how would this increase in confidence affect the value of the dollar? Elucidate how would it affect the trade deficit?