* The accompanying diagram shows an AD/AS diagram. The economy begins at Eo with output equal to Y . Suppose this is an open economy where financial capital is internationally mobile. The government in this economy increases G and finances it by running a deficit (borrowing). The AD curve shifts to the right. Compared to what would happen if this were a closed economy, describe the additional effect that takes place in an open economy. Foreign financial capital flows directly leading to this economy, most If this effect is sustained over several months or longer, it will most directly cause this country's Price Level 0 E2 EO Real GDP AS' AS AD' -AD

* The accompanying diagram shows an AD/AS diagram. The economy begins at Eo with output equal to Y . Suppose this is an open economy where financial capital is internationally mobile. The government in this economy increases G and finances it by running a deficit (borrowing). The AD curve shifts to the right. Compared to what would happen if this were a closed economy, describe the additional effect that takes place in an open economy. Foreign financial capital flows directly leading to this economy, most If this effect is sustained over several months or longer, it will most directly cause this country's Price Level 0 E2 EO Real GDP AS' AS AD' -AD

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 4DQ

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