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What will happen to the trade balance and the real exchange rate of a small open economy when government purchases in as during a war? Does your answer depend on whether this is a local war or a world war? a. Make the appropriate changes to the graph below to reflect an increase in government purchases for national defense. Real Exchange Rate (0) 20 18 16 14 12 10 a 0 World Interest Rate 2 National Saving less Domestic Investment (S-1) 6 10 12 14 16 Net Exports (NX) Net Exports, or NX(e) 18 20 b. For a local war, the increase in government purchases woud cause change in net exports would push the trade balance toward to decrease, and the resulting c. For a world-wide war, world defense spending increases would cause a decline in world saving, which would result in an increase in The impact on the domestic trade balance depends on the sensitivity of to changes in the world interest rate.

What will happen to the trade balance and the real exchange rate of a small open economy when government purchases in as during a war? Does your answer depend on whether this is a local war or a world war? a. Make the appropriate changes to the graph below to reflect an increase in government purchases for national defense. Real Exchange Rate (0) 20 18 16 14 12 10 a 0 World Interest Rate 2 National Saving less Domestic Investment (S-1) 6 10 12 14 16 Net Exports (NX) Net Exports, or NX(e) 18 20 b. For a local war, the increase in government purchases woud cause change in net exports would push the trade balance toward to decrease, and the resulting c. For a world-wide war, world defense spending increases would cause a decline in world saving, which would result in an increase in The impact on the domestic trade balance depends on the sensitivity of to changes in the world interest rate.

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: A Macroeconomic Theory Of The Open Economy
Section: Chapter Questions
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What will happen to the trade balance and the real exchange rate of a small open economy when government purchases incr as during a war? Does your answer depend on whether this is a local war or a world war? a. Make the appropriate changes to the graph below to reflect an increase in government purchases for national defense. Real Exchange Rate () 20 18 16 14 12 10 20 2 World Interest Rate 0 2 4 6 8 10 12 Net Exports (NX) National Saving less Domestic Investment (S-1) Net Exports, or NX(e) 14 16 18 20 b. For a local war, the increase in government purchases woud cause change in net exports would push the trade balance toward to decrease, and the resulting c. For a world-wide war, world defense spending increases would cause a decline in world saving, which would result in an The impact on the domestic trade balance depends on the sensitivity of increase in to changes in the world interest rate.
Transcribed Image Text:What will happen to the trade balance and the real exchange rate of a small open economy when government purchases incr as during a war? Does your answer depend on whether this is a local war or a world war? a. Make the appropriate changes to the graph below to reflect an increase in government purchases for national defense. Real Exchange Rate () 20 18 16 14 12 10 20 2 World Interest Rate 0 2 4 6 8 10 12 Net Exports (NX) National Saving less Domestic Investment (S-1) Net Exports, or NX(e) 14 16 18 20 b. For a local war, the increase in government purchases woud cause change in net exports would push the trade balance toward to decrease, and the resulting c. For a world-wide war, world defense spending increases would cause a decline in world saving, which would result in an The impact on the domestic trade balance depends on the sensitivity of increase in to changes in the world interest rate.
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