In the box on New Zealand, we derived an equation showing how the IIP changes over time: IIPt+ 1 = 11 + r2IIPt + NXt. Show that if g = (GDPt + 1 - GDPt) > GDPt is the growth rate of nominal output (GDP), and lower-case variables denote ratios to nominal GDP (as in the chapter), we can express this same equation in the form:

Use this expression to find the ratio of net exports to GDP that holds the IIP to GDP ratio iip constant over time.

Transcribed Image Text:

(1 + r)ip, +nx