Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new factories

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Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new factories and office space.

a. How will this increase in investment affect output, interest rates, and the current account?

b. Now repeat part (a), assuming that domestic investment is very responsive to the interest rate so that U.S. firms will cancel their new investment plans if the interest rate rises. How will this affect the answer you gave previously?

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International Economics

ISBN: 9781319218508

5th Edition

Authors: Robert C. Feenstra, Alan M. Taylor

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Question Posted: Jan 09, 2023 09:21 AM

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Suppose that American firms become more pessimistic and decide to reduce investment expenditure today in new factories

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a This is an exogenous decrease in investment demand This leads to an increase in the demand for goo...View the full answer

International Economics

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