Consider a small open economy. Assume that the introduction of new products overseas makes existing products...

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Consider a small open economy. Assume that the introduction of new products overseas makes existing products of the country less popular. a) What happens to savings, investments, net exports, the interest rate and the exchange rate in the country? Draw a diagram(s) to illustrate your answer. (5 marks) b) The country's citizens are considering to travel abroad. How will the change in the exchange rate affect them? (1 mark) c) The fiscal policymakers in the country want to adjust taxes to maintain the exchange rate at its previous level. What should they do? If they do this, what are the overall effects on income, savings, investments, net exports and the interest rate? Explain your answers using a set of diagram(s). (5 marks) d) Suppose that the monetary authority will be the one that is in charge of maintaining the exchange rate at the previous level instead. What should it do? What are the overall effects on income, savings, investments, net exports and the interest rate? Explain your answers using a set of diagram(s). (5 marks) e) Using output level as the main criterion to rank those policies (i.e., the higher the better), which policy will you choose? (1 mark) Consider a small open economy. Assume that the introduction of new products overseas makes existing products of the country less popular. a) What happens to savings, investments, net exports, the interest rate and the exchange rate in the country? Draw a diagram(s) to illustrate your answer. (5 marks) b) The country's citizens are considering to travel abroad. How will the change in the exchange rate affect them? (1 mark) c) The fiscal policymakers in the country want to adjust taxes to maintain the exchange rate at its previous level. What should they do? If they do this, what are the overall effects on income, savings, investments, net exports and the interest rate? Explain your answers using a set of diagram(s). (5 marks) d) Suppose that the monetary authority will be the one that is in charge of maintaining the exchange rate at the previous level instead. What should it do? What are the overall effects on income, savings, investments, net exports and the interest rate? Explain your answers using a set of diagram(s). (5 marks) e) Using output level as the main criterion to rank those policies (i.e., the higher the better), which policy will you choose? (1 mark)

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a How the introduction of new products overseas affects the country Savings Savings may decrease as consumers spend more on the new oversea products and less on domestic products Investment ... View the full answer