In a Keynesian model, what are the short-run effects on output, the real interest rate, and the real exchange rate, for both the domestic economy and a foreign economy, of a decline in investment?
What will be an ideal response?
The IS curve shifts down and to the left, causing Y to decline and r to decline. The decline in Y causes imports to decline and NX to increase. The effect on the exchange rate is ambiguous, because the increase in NX causes the exchange rate to rise, while the decline in r causes it to fall. The increase in NX causes NXrFor to decline, which causes the foreign IS curve to shift down and to the left, causing YFor and rFor to decline.
You might also like to view...
If Turkey wants to promote faster economic growth, it will need to
A) promote government intervention to help markets determine incentives. B) restrict property rights so that individuals can better share inventions. C) promote incentive systems to encourage saving, research and development, increased trade and improved education. D) restrict economic freedom so the government has better control of markets. E) restrict international trade to protects its own workers.
A student who just graduated from college but has not found a job would most likely be
A) cyclically unemployed. B) frictionally unemployed. C) seasonally unemployed. D) structurally unemployed.