A U.S. Congressperson wants to reduce the U.S. trade deficit by imposing tariffs on imports. Use a model of a large open economy with a flexible exchange rate to predict the impact of tariffs on U.S. imports, exports, net exports, the exchange rate, and the interest rate.

Answered: A U.S. Congressperson wants to reduce…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A U.S. Congressperson wants to reduce the U.S. trade deficit by imposing tariffs on imports. Use a model of a large open economy with a flexible exchange rate to predict the impact of tariffs on U.S. imports, exports, net exports, the exchange rate, and the interest rate.

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The IS-LM model is the Keynesian macroeconomic model which states the relationship between market for economic goods and the money market. The IS-LM model stands for 'investment-savings' and 'liquidity performance and money supply' The IS and LM curve intersects for showing the equilibrium in the short run between interest rates and productivity. The model can be used for describing how the market preference changes the GDP equilibrium levels and the market interest rates.

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