Suppose that American firms become more optimistic and decide to increase investment expenditure today in new factories
Question:
a. How will this increase in investment affect output, interest rates, and the current account?
b. Now assume 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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a This is an exogenous increase in investment demand This leads to an increase in the demand for goo...View the full answer
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Related Book For 
International Economics
ISBN: 978-1429278447
3rd edition
Authors: Robert C. Feenstra, Alan M. Taylor
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