Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?
Such a campaign will increase the demand for domestically produced goods and hence decrease the demand for imports. This increases the demand for dollars in the market for foreign currency. The real exchange rate of the U.S. dollar will appreciate, and the net effect will be no change in the trade balance. The level of net exports ultimately depends upon domestic saving and investment, neither of which are affected by the campaign.
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The U.S. current account equals
A) U.S. exports - U.S. imports - net income from foreign investments + net transfers from abroad. B) U.S. exports - U.S. imports + net income from foreign investments + net transfers from abroad. C) U.S. exports + U.S. imports + net income from foreign investments + net transfers from abroad. D) U.S. imports - U.S. exports + net income from foreign investments + net transfers from abroad.
When drawn against the current real wage, the labor demand curve shift to the right if
A) the interest rate increases. B) current taxes increase. C) total factor productivity increases. D) future capital increases.