From the Wall Street Journal, a great application of the TB/Y Model with an extension to currency fluctuations
by Kelly Evans WSJ, Nov 16, 2009
SUMMARY: The dollar's recent weakness is helping to boost the sale of U.S. goods abroad,
but it isn't yet narrowing the nation's trade deficit because of the US recovery.
QUESTIONS:
1. What happened to the trade deficit in September? How will that affect GDP in the third quarter?
2. What does a widening trade deficit indicate about the strength of the U.S. economy? Use the TB/Y
diagram and explain how it predicts the trade deficit and why
4. Why does the administration favor a "strong dollar"? What are the benefits of
a strong dollar?
Reviewed for the Journal in Education by Edward Gamber, Lafayette College