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Using the long run model of a small open economy to graph the impact of reducing...

Using the long run model of a small open economy to graph the impact of reducing the government budget deficit (T up or G down) on the us exchange rate and trade balance. Draw corresponding diagrams for the market of loanable funds and foreign currency exchange market. Please label axes, curves, equilibrium values, curve shift direction.

Based on the graph, explain why Camdessus' policy is useful here. What happens to the exchange and trade balance because of the government budget deficit.

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Rahul Sunny answered 2 years ago
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