7. Use the textbook’s model of a small, open economy with perfectly mobile capital to predict...

7. Use the textbook’s model of a small, open economy with perfectly mobile capital to predict how each of the following shocks will affect a nation’s national saving (S), investment (I), trade balance (NX), and real exchange rate (), all else equal. For each shock, be sure to clearly state a prediction for all four variables and illustrate your predictions with the relevant supply/demand diagrams.

a. The domestic supply of capital increases (KS up)

b. Domestic government purchases are reduced (G down)

c. Forecasts of a recession cause an exogenous decrease in autonomous investment (i0 down)

d. A decrease in the world’s supply of loanable funds, pushes world interest rates up (rw* up)

I need help with the graphs

Expert Solution

Rahul Sunny answered 1 year ago

Use the textbook’s model of a small, open economy with perfectly mobile capital to predict how...

Use the textbook’s model of a small, open economy with perfectly mobile capital to predict how each of the following shocks will affect a nation’s national saving (S), investment (I), trade balance (NX), and real exchange rate (), all else equal. For each shock, be sure to clearly state a prediction for all four variables and illustrate your predictions with the relevant supply/demand diagrams. a. The domestic labor force expands (LS up) b. Domestic income taxes are reduced (T down)...

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