Use the model of small open economy to predict what would happen to the trade balance, and the real exchange rate in response to each of the following events. Use a graph to illustrate your answer and explain the graph. Please label the graph completely, including indicating all curves in the graph and label the axes. a) A fall in consumer confidence about the future induces consumers to spend less and save more. b) A tax reform increases the incentive for business to build new factories

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