1. Business
  2. Economics
  3. iv suppose there is an increase in foreign output a...

Question: iv suppose there is an increase in foreign output a...

Question details

IV. Suppose there is an increase in foreign output. a. Show the effect on the domestic economy using a two panel diagram that illustrates equilibrium output and net exports. What is the effect on domestic output? On domestic net exports? b. If the interest rate remains constant, what will happen to domestic investment? If taxes are fixed, what will happen to the domestic budget deficit? c. What must happen to private saving? Explain. d. Foreign output does not appear in equations on pg.15 of the lecture note The Goods Market in an Open Economy (Ch.18), yet it evidently affects net exports. Explain how this is possible.

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution