1. Consider the U.S. economy depicted below, which is initially in a long-run equilibrium. a) Suppose the government decides to decrease government expenditures and taxes by the same amount. Reflect the effects of this "balanced-budget" change on the diagram below. What happens to the U.S. real interest rate? Does the U.S. dollar appreciate or depreciate? Explain. r S I+NCO LF 3 & NCO NCO NX NX b) From the initial to the new long-run equilibrium, explain what happens to U.S. output, consumption, investment, government expenditure, and net exports? Briefly explain.
1. Consider the U.S. economy depicted below, which is initially in a long-run equilibrium. a) Suppose the government decides to decrease government expenditures and taxes by the same amount. Reflect the effects of this "balanced-budget" change on the diagram below. What happens to the U.S. real interest rate? Does the U.S. dollar appreciate or depreciate? Explain. r S I+NCO LF 3 & NCO NCO NX NX b) From the initial to the new long-run equilibrium, explain what happens to U.S. output, consumption, investment, government expenditure, and net exports? Briefly explain.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
Problem 4CQQ
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![1. Consider the U.S. economy depicted below, which is initially in a long-run equilibrium.
a) Suppose the government decides to decrease government expenditures and taxes by the
same amount. Reflect the effects of this "balanced-budget" change on the diagram
below. What happens to the U.S. real interest rate? Does the U.S. dollar appreciate or
depreciate? Explain.
r
S
LF
I+NCO
&
&
NCO
NCO
NX
NX
b) From the initial to the new long-run equilibrium, explain what happens to U.S. output,
consumption, investment, government expenditure, and net exports? Briefly explain.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9dda7fc1-db89-445b-ad29-68b72e7afae8%2F539c3fc2-0268-4cec-b98d-e660351508d2%2Fm94pmd_processed.png&w=3840&q=75)
Transcribed Image Text:1. Consider the U.S. economy depicted below, which is initially in a long-run equilibrium.
a) Suppose the government decides to decrease government expenditures and taxes by the
same amount. Reflect the effects of this "balanced-budget" change on the diagram
below. What happens to the U.S. real interest rate? Does the U.S. dollar appreciate or
depreciate? Explain.
r
S
LF
I+NCO
&
&
NCO
NCO
NX
NX
b) From the initial to the new long-run equilibrium, explain what happens to U.S. output,
consumption, investment, government expenditure, and net exports? Briefly explain.
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