Use the textbook's model of a small, open economy with perfectly mobile capital to predict how...
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Use the textbook's model of a small, open economy with perfectly mobile capital to predict how each of the following shocks will affect a nation's national saving (S), investment (1), trade balance (NX), and real exchange rate (s), all else equal. For each shock, be sure to clearly state a prediction for all four variables, illustrate your predictions with the relevant supply/demand diagrams, and explain your predictions intuitively in words. a. The domestic labor force expands (L$ up) b. A decrease in the world's supply of loanable funds, pushes up world interest rates (rw* up) c. Domestic income taxes are reduced (T down) d. Forecasts of a recession cause an exogenous decrease in autonomous investment (io down) Use the textbook's model of a small, open economy with perfectly mobile capital to predict how each of the following shocks will affect a nation's national saving (S), investment (1), trade balance (NX), and real exchange rate (s), all else equal. For each shock, be sure to clearly state a prediction for all four variables, illustrate your predictions with the relevant supply/demand diagrams, and explain your predictions intuitively in words. a. The domestic labor force expands (L$ up) b. A decrease in the world's supply of loanable funds, pushes up world interest rates (rw* up) c. Domestic income taxes are reduced (T down) d. Forecasts of a recession cause an exogenous decrease in autonomous investment (io down)
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Effect of following shocks on national saving S investment 1 trade balance NX and real exchange rate ... View the full answer
Related Book For
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
Posted Date:
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