Consider a small open economy with perfect capital mobility. The economy now goes to war, and government expenditures increase. Private savings and taxes do not change. Investment demand remains dependent upon r, but does not shift. What happens to the trase balance (X-M), the real exchange rate (e) and, over time, net foreign assets (NTA)? (a) X-M1, et, NFA ↑ (b) X-M 1,↓, NFA ↑ (c) X-M ↓, et, NFA ↑ (d) X-M , ↓, NFA ↓ (e) X-M 1, et, NFA ↓ (f) None of the above.

Consider a small open economy with perfect capital mobility. The economy now goes to war, and government expenditures increase. Private savings and taxes do not change. Investment demand remains dependent upon r, but does not shift. What happens to the trase balance (X-M), the real exchange rate (e) and, over time, net foreign assets (NTA)? (a) X-M1, et, NFA ↑ (b) X-M 1,↓, NFA ↑ (c) X-M ↓, et, NFA ↑ (d) X-M , ↓, NFA ↓ (e) X-M 1, et, NFA ↓ (f) None of the above.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 46P: Imagine that the economy of Germany finds itself in the following situation: the government budget...

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