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...