8:12 < .ıll 100 The IS Relation in the Open Econo... An increase in government spending leads to an increase in output and to a trade deficit. Demand, Z (a) 45° (b) Net exports, NX AG > O YTB Output, Y Output, Y 3 A' ZZ' B Trade deficit NX ZZ • Summary: - An increase in domestic demand leads to an increase in domestic output but leads also to a deterioration of the trade balance. An increase in foreign demand leads to an increase in domestic output and an improvement in the trade balance. Implications: - Shocks to demand in one country affect all other countries. Economic interactions complicate the task of policy makers. Policy coordination is not so easy to achieve. 1 Q 4 ...
8:12 < .ıll 100 The IS Relation in the Open Econo... An increase in government spending leads to an increase in output and to a trade deficit. Demand, Z (a) 45° (b) Net exports, NX AG > O YTB Output, Y Output, Y 3 A' ZZ' B Trade deficit NX ZZ • Summary: - An increase in domestic demand leads to an increase in domestic output but leads also to a deterioration of the trade balance. An increase in foreign demand leads to an increase in domestic output and an improvement in the trade balance. Implications: - Shocks to demand in one country affect all other countries. Economic interactions complicate the task of policy makers. Policy coordination is not so easy to achieve. 1 Q 4 ...
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:8:12
<
.ıll
100
The IS Relation in the Open Econo...
An increase in government spending leads to an increase in output and to a trade deficit.
Demand, Z
(a)
45°
(b)
Net exports, NX
AG > O
YTB
Output, Y
Output, Y
3
A'
ZZ'
B
Trade deficit
NX
ZZ
•
Summary:
-
An increase in domestic demand leads to an increase in domestic output but leads
also to a deterioration of the trade balance.
An increase in foreign demand leads to an increase in domestic output and an
improvement in the trade balance.
Implications:
-
Shocks to demand in one country affect all other countries.
Economic interactions complicate the task of policy makers. Policy coordination
is not so easy to achieve.
1
Q
4
...
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