(Please draw GRAPHS) Consider an open economy . Assume that all prices are flexible and there is complete information . Assume that consumption depends on current and future expected disposable income and on the real interest rate . Speculate on what would happen to the real exchange rate , the nominal exchange rate , net exports , the domestic real interest rate , domestic output , and domestic investment if : a . A temporary increase in productivity that does not change the marginal products of labor or capital . b . Venezuela defaults on its debt , raising concerns that developing countries have become riskier places to place savings in . Assume that the domestic country in the question is a developed country like the US .
(Please draw GRAPHS) Consider an open economy . Assume that all prices are flexible and there is complete information . Assume that consumption depends on current and future expected disposable income and on the real interest rate . Speculate on what would happen to the real exchange rate , the nominal exchange rate , net exports , the domestic real interest rate , domestic output , and domestic investment if : a . A temporary increase in productivity that does not change the marginal products of labor or capital . b . Venezuela defaults on its debt , raising concerns that developing countries have become riskier places to place savings in . Assume that the domestic country in the question is a developed country like the US .
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(Please draw GRAPHS)
Consider an open economy . Assume that all prices are flexible and there is complete information . Assume that consumption depends on current and future expected disposable income and on the real interest rate . Speculate on what would happen to the real exchange rate , the nominal exchange rate , net exports , the domestic real interest rate , domestic output , and domestic investment if :
a . A temporary increase in productivity that does not change the marginal products of labor or capital .
b . Venezuela defaults on its debt , raising concerns that developing countries have become riskier places to place savings in . Assume that the domestic country in the question is a developed country like the US .
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