AK_Chapter_13 - 5 Would cause net exports to rise for...

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Chapter 13 SOLUTIONS TO TEXT PROBLEMS: Questions for Review 1. In the market for loanable funds, supply = national saving; demand = domestic investment + NCO. In the market for foreign exchange, supply = NCO; demand = net exports. The link between the two markets is NCO. 2. Investments up, savings down, NCO down, exchange rate up. 3. Exchange rate up. Textile industry’s imports down (winner), auto industry’s imports up (loser). 4. Funds go out of a country. Interest rate up, exchange rate down. Problems and Applications 1. High Japanese saving rate. 2. NX shift out (increase). Canadian dollar appreciates. 3. Saving up, domestic investment up, NCO down, interest rate up, exchange rate up, trade balance down. 4. NX would fall. As a result, the real exchange rate would fall. This would increase NX, offsetting the direct impact of import restrictions.
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Unformatted text preview: 5. Would cause net exports to rise for Ontario and for the other provinces. 6. Dollar depreciates and net exports rise. 7. The supply of loanable funds shifts out => NCO up => exchange rate down => NX up. 8. a. demand up. b. exchange rate up. c. unchanged. 9. NX up at any given real exchange rate => the demand for dollars shifts up => higher real exchange rate, but no change in net exports. Subsidy will not reduce the trade deficit. 10. NCO rises => value of the dollar falls and net exports rises. 11. a. large (but don‘t worry if you can‘t do it. We do not consider elasticity questions). b. small (but don‘t worry if you can‘t do it. We do not consider elasticity questions). 12. a. NCO down. b. private saving down, domestic investment up. c. domestic investment up => increased capital stock....
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