EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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Chapter 20, Problem 2E
To determine
Net export and the IS curve.
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exports and the IS curve: Consider the way in which net exports dependon the real exchange rate. Does the dependence of net exports on the realexchange rate make the IS curve steeper or fatter?
Consider the following equation:
NX(ɛ) = S - I(r*)
This equation is used to draw the diagram illustrating the foreign exchange market, where there is
a negative relationship between NX and ɛ; and S, - I(r*) is perfectly inelastic.
Here NX is net exports, ɛ is the exchange rate, S represents the level of savings in the economy, I
represent the level of investment in the economy, and r is the interest rate.
a. Use a carefully labeled diagram to illustrate the effect of a contractionary fiscal policy at
home on savings, interest rate, net capital outflow and the exchange rate
b. Use a carefully labeled diagram to illustrate the effect of a contractionary fiscal policy
abroad on savings, interest rate, net capital outflow and the exchange rate
Hi There!
The difference between the slopes of the IS and RX curves depends only on the sensitivity of net exports to the real exchange rate.
Is this true or false? I've found little on the topic.
Chapter 20 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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