Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 13, Problem 8RQ
To determine
To know: Effect on net exports by expansionary fiscal
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How does an increase in foreign income affect domestic aggregate expenditures and demand?
What impact will budget deficits have on the exchange rate value of the dollar? How will this impact net exports and aggregate demand? Explain.
3. How reasonable is it for every country to follow policies aimed at increasing net exports?
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- What is J-curve? Explain the behavior of net exports represented by the J curve.arrow_forwardExpansionary fiscal policy is a useful instrument which can be used to stimulate aggregate spending in an economy. In the case of an open economy, the use of this type of policy can have a significant impact on the trade balance. Discuss, with the aid of clearly labelled graphs, how such an expansionary policy decision will impact on the goods market and net exportsarrow_forwardWhat are the automatic adjustment mechanisms for current account imbalances under the classical and Keynesian views? Discussarrow_forward
- Q-3: B. The following graph shows a relationship between saving (S), investment (I) and world interest rate (r*); given that r*> r, where r is domestic interest rate. Graphically show and interpret the impacts of following policy measures on saving (S), investment (I), and net exports (NX):a) Change in fiscal policy at homeb) Change in fiscal policy abroadc) An increase in investment demandarrow_forwardAssuming the economy is operating below its potential output, what is the impact of an increase in net exports on real GDP ? Why is it difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession?arrow_forwardGiven flexible exchange rates and perfect capital mobility, what will be effect of an expansionary fiscal policy on output and price? Use IS-LM and AD-SRAS-LRAS diagrams to answer this question.arrow_forward
- Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect a decrease in consumer confidence will have on output, exports, imports, and net exports. Clearly label all curves and clearly label the initial and final equilibria. zz shifts downwards?arrow_forwardIn your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.arrow_forwardSuppose after five years of sluggish growth, the economy of the European Union picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?arrow_forward
- Everything else held constant, a decrease in net exports Select one: aggregate a. increases; supply b. decreases; demand c. decreases; supply d. increases; demandarrow_forwardSuppose a country imposes an import tariff (as a topical real-world example, think about the U.S. under President Donald Trump imposing tariffs on China and a host of other countries). Answer the following questions and 1. What is the effect on imports, exports, and net exports? 2. What is the effect on net foreign investment and the exchange rate?arrow_forwardEverything else held constant, a decrease in net exports ______aggregate ________. OPTIONS: Increases; supply Decreases; demand Decreases; supply Increases; demandarrow_forward
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