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Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply Demand Quantity of Loanable Funds the fiscal deficit, thereby Demand Supply (?, Given the change in the real interest rate, show the effect this has on net capital outflow. NCO ? public saving.

Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply Demand Quantity of Loanable Funds the fiscal deficit, thereby Demand Supply (?, Given the change in the real interest rate, show the effect this has on net capital outflow. NCO ? public saving.

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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1. Initial Effect 2. Saving Effect Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies Real Interest Rate On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply X Demand Quantity of Loanable Funds STEP: 2 of 2 Net Capital Outflow NCO the fiscal deficit, thereby This causes the supply of dollars in the foreign exchange market to net exports to Given the change in the real interest rate, show the effect this has on net capital outflow. Demand Supply (?) NCO Movable Point " (?) the real exchange rate to public saving. , and the equilibrium level of
Transcribed Image Text:1. Initial Effect 2. Saving Effect Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies Real Interest Rate On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply X Demand Quantity of Loanable Funds STEP: 2 of 2 Net Capital Outflow NCO the fiscal deficit, thereby This causes the supply of dollars in the foreign exchange market to net exports to Given the change in the real interest rate, show the effect this has on net capital outflow. Demand Supply (?) NCO Movable Point " (?) the real exchange rate to public saving. , and the equilibrium level of
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