If a corporate downsizing and lack of job security cause consumers to spend less and save more, what will be the impact on the exchange rate and trade balance? use the long-run model of a small open economy to illustrate graphically the impact of this decline in consumer confidence on the exchange rate and the trade balance.Assume the country starts from a position of trade balance. i.e. exports equal imports. be sure to label: the axes, the curves, the initial equilibrium valuesthe direction and curves shift, and the new long-run equilibrium values.
Based on your graphical analysis, explain the predicted impact of decline in consumer confidense on the exchange rate and the U.S trade balance.