consider the long-run impact of the increase in saving by American families, and consider the U.S....

consider the long-run impact of the increase in saving by American families, and consider the U.S. as an open economy with international trade and international capital flows. As before, assume that there is no policy response to the increased saving by American families. What would be the long run impact of the increased saving on the U.S. interest rate, on the value of the U.S. dollar, and on U.S. net exports? Explain. (use the IS-LM and AS-AD logic to answer)

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Expert Solution

Impact of long run saving on interest rates -The long term saving by American families will decrease the cash flow in economy due to which the US central bank will decrease the interst rates to decrease the saving by American families.

Impact of long run saving on US dollar - The long run saving in the US economy will decreased the interest rates and due to decrease in the US interest rate the rate of return on dollars will be less due to which the investor will invest on foreign which will decrease the US dollar value.

Impact of long run saving on US exports - The long run saving by American families will decrease the value of US dollar The decrease in US dollar will increase the price competitiveness of US exports. Cheaper exports will lead to an increase in demand from foreign which will lead to increase in exports.Also due to fall in the dollar, US consumers will face increased prices of imported goods, so the growth in demand for imports will slow. It may encourage US consumers to switch to domestically produced goods.

Rahul Sunny answered 1 year ago

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