uppose tne Onited States decides to reduce export agricuiturai products, but it dde government spending. nitially, 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 v the fiscal deficit, thereby public saving. On the following graph, indicate the effect this has on the U.S. market for loanable funds. Supply Demand Supply Demand Quantity of Loanable Funds Real Interest Rate
uppose tne Onited States decides to reduce export agricuiturai products, but it dde government spending. nitially, 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 v the fiscal deficit, thereby public saving. On the following graph, indicate the effect this has on the U.S. market for loanable funds. Supply Demand Supply Demand Quantity of Loanable Funds Real Interest Rate
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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