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Initially, there is a trade surplus in an open economy with a perfect capital mobility and...

Initially, there is a trade surplus in an open economy with a perfect capital mobility and a world interest rate rw. Suppose the government reduces her expenditure. How does the reduction in the government expenditure affect net capital outflow, exchange rate, and net exports? Answer with the aid of the supply-and-demand diagram for the foreign-currency exchange market.

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Rahul Sunny answered 2 years ago
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