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Answer the foreign countrys saving curve shifts to

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Answer: The foreign country's saving curve shifts to the right, from S 1For to S 2For The real world interest rate must fall, so the current account surplus in the foreign country equals the current account deficit in the home country. As shown in the figure, S falls, I rises, CA falls, r w falls. c). An increase in foreign government purchases. Answer: The foreign country's saving curve shifts to the left, from S 1For to S2For. The real world interest rate must rise, so the current account deficit in the foreign country equals the current account surplus in the home country. As shown in the figure, S rises, I falls, CA rises, r w rises.
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Week 8 Tutorial Questions Solutions (Ch5) Week 8 Page 6 d). An increase in foreign taxes (consider both the case in which Ricardian equivalence holds and the case in which it does not hold). Answer: If Ricardian equivalence holds, there is no effect. If Ricardian equivalence does not hold, then the result is the same as in part b, as the foreign country's saving curve shifts to the right.
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