Using the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the government increases government spending that are fully financed by increase of taxes (change of government spending is equal to the increase of taxes). What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?

Using the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the government increases government spending that are fully financed by increase of taxes (change of government spending is equal to the increase of taxes). What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 10QP

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Using the model that we have developed, show what would happen with a new equilibrium domestic price level and real output if the Central Bank increases the policy rate. What will be the size of the AD curve shift? Keeping nominal exchange rate and foreign price level constant, what will happen with the real exchange rate, import and net export?
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