1. In each scenario below: Draw a loanable funds market diagram to show a small open economy with a balanced trade. On your diagram, show the effects from the specified scenario. Explain your diagram and describe the scenario effects on investment, net exports, and net capital outflow in the small open economy. a. A decrease in the domestic government spending G b. A tax cut abroad c. An increase in the domestic investment demand

1. In each scenario below: Draw a loanable funds market diagram to show a small open economy with a balanced trade. On your diagram, show the effects from the specified scenario. Explain your diagram and describe the scenario effects on investment, net exports, and net capital outflow in the small open economy. a. A decrease in the domestic government spending G b. A tax cut abroad c. An increase in the domestic investment demand

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. In each scenario below: Draw a loanable funds market diagram to show a small open economy
with a balanced trade. On your diagram, show the effects from the specified scenario. Explain
your diagram and describe the scenario effects on investment, net exports, and net capital
outflow in the small open economy.
a. A decrease in the domestic government spending G
b. A tax cut abroad.
c. An increase in the domestic investment demand

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Step 1: Define Loanable fund market

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Step 2: Find the impact of decrease in G, tax cut in foreign and increase in I on Loanable fund market

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