# Question: Suppose that the economy begins in a position of balanced

Suppose that the economy begins in a position of balanced trade. Use the model of the small open economy to predict what would happen to the trade balance, and the real exchange rate in response to each of the following events.

a. A fall in consumer confidence about the future induces consumers to spend less and save more

b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.

a. A fall in consumer confidence about the future induces consumers to spend less and save more

b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.

**View Solution:**## Answer to relevant Questions

Consider an economy described by the following equations:Y = C + I + G + NXY = 5,000G = 1,000T = 1,000C = 250 + 0.75 (Y – T)I = 1,000 – 50 rNX = 500 - 500εr = r* = 5a. In this economy, solve for national saving, ...What would be common saving goals for a person who buys a five year CD is paying 5.5 percent instead of an 18- month saving certificate paying 4.75 percent?Kelly and Tim Brown plan to refinance their mortgage for a lower interest rate. They will reduce their mortgage payment by $83 a month. Their closing cost for refinancing will be $1,670. How long will it take them to recover ...Explain the effect on the average lives of sequential-pay structures of including an accrual tranche in a CMO structure.The time required to complete a certain type of construction project follows a normal distribution with a mean of 60 weeks and a standard deviation of 4 weeks. What is the probability of completing the project in no more ...Post your question