Assume we have a small open economy. The government budget is in balance (T-G=0) and Savings equals investment (S-I=0). A. Suppose the government increases G by 100, holding taxes constant. Given that Savings = Private Savings + Public savings. What happens to S-I? Be specific (numbers). B. Given that I = I (r), what happens to the real interest rate? Does it rise or fall? Why? C. Given that in A there was a change in the S-I, what happens to Net Exports? Be specific (numbers). Why?

Assume we have a small open economy. The government budget is in balance (T-G=0) and Savings equals investment (S-I=0). A. Suppose the government increases G by 100, holding taxes constant. Given that Savings = Private Savings + Public savings. What happens to S-I? Be specific (numbers). B. Given that I = I (r), what happens to the real interest rate? Does it rise or fall? Why? C. Given that in A there was a change in the S-I, what happens to Net Exports? Be specific (numbers). Why?

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 2WNG

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