Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply Demand Quantity of Loanable Funds the fiscal deficit, thereby Demand Supply (?, Given the change in the real interest rate, show the effect this has on net capital outflow. NCO ? public saving.

Suppose the United States decides to reduce export subsidies on U.S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point. However, the reduction in expenditure on export subsidies On the following graph, indicate the effect this has on the U.S. market for loanable funds. Real Interest Rate Supply Demand Quantity of Loanable Funds the fiscal deficit, thereby Demand Supply (?, Given the change in the real interest rate, show the effect this has on net capital outflow. NCO ? public saving.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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