Answer to Question #88281 in Macroeconomics for arnav

Question

Assuming fixed exchange rate,explain how a recessionary situation in United State can feed into a recessionary situation in Indian economy.

Answer 1

Assuming fixed exchange rate, a recessionary situation in United State can feed into a recessionary situation in Indian economy, because there may be significant change in the amount of foreign trade between these countries, United States would import less, so Indian exports would decline causing a recessionary situation in Indian economy.