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In summary, the income effect combined with the fiscal stimulus will tend to reduce the rate of exchange of the currency of the country, weakening current account (trade balance) and strengthening of the financial account.Financial and policy impact income move in the same direction with respect to the financial impact and their existing Google account. Fiscal policy stimulus will clearly weaken current account (trade balance) and strengthen its capital account. Limit financial policy will strengthen the current account (trade balance) and weakened in capital accounts.The impact of fiscal policy on the exchange rate is not so clear because the income and price effects work in the opposite direction. Income effect tends to weaken the currency, the exchange rate in effect when the price will tend to strengthen its currency exchange rate. Because foreign investors can trade in financial assets (such as stocks and bonds) more quickly and easily than consumers and producers can change the purchase and sale of physical assets, effective reviews would be expected to have a larger initial efficiency. Over time, the income effect will increasingly come into play.So initially, fiscal stimulus should cause the domestic currency appreciates. Over time, as import demand is stimulated, the domestic currency will weaken. If fiscal stimulus is related to inflation, there will be a further weakening of the currency in the country. Note that fiscal stimulus will also have the impact worse trade balance and increase the financial accounts in both the short and long term.Stimulative fiscal policy is good for the economy when it is operating below the full employment level. There are a few factors that will mitigate the positive effects. Another factor is that the government deficit will work to increase interest rates may crowd out private investment. Another factor is that after foreign capital (due to higher interest rates), the currency exchange rate in the country increased. This leads to an increase in imports, reduce GDP. Two factors do reduce the positive impact of fiscal stimulus policies.
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