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• Consider the long-run model of a small open economy with perfect capital mobility. araning from an initial equilibrium with balanced trade (NX = 0), show graphically and list logical steps explaining how the following events affect saving (S). investment (1), and the trade balance (NX) in this economy. %3! a. The domestic government decreases government purchases (G). b. Foreign governments increase taxes (T*), causing a change in the world real interest rate (r*). Show the effects on (i) the (closed) world economy and (ii) the small open economy.

• Consider the long-run model of a small open economy with perfect capital mobility. araning from an initial equilibrium with balanced trade (NX = 0), show graphically and list logical steps explaining how the following events affect saving (S). investment (1), and the trade balance (NX) in this economy. %3! a. The domestic government decreases government purchases (G). b. Foreign governments increase taxes (T*), causing a change in the world real interest rate (r*). Show the effects on (i) the (closed) world economy and (ii) the small open economy.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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gonsider the long-run model of a small open economy with perfect capital mobility. Starting from an initial equilibrium with balanced trade (NX = 0), show graphically and list logical steps explaining how the following events affect saving (S). investment (1), and the trade balance (NX) in this economy. a. The domestic government decreases government purchases (G). b. Foreign governments increase taxes (T*), causing a change in the world real interest rate (r*). Show the effects on (i) the (closed) world economy and (ii) the small open economy.
Transcribed Image Text:gonsider the long-run model of a small open economy with perfect capital mobility. Starting from an initial equilibrium with balanced trade (NX = 0), show graphically and list logical steps explaining how the following events affect saving (S). investment (1), and the trade balance (NX) in this economy. a. The domestic government decreases government purchases (G). b. Foreign governments increase taxes (T*), causing a change in the world real interest rate (r*). Show the effects on (i) the (closed) world economy and (ii) the small open economy.
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