4)The world interest rate:
5)I: The twin deficits prediction is the proposition that a country with a large government budget deficit is likely to have a large trade deficit. II: An increase in foreign interest rates will causes changes in a small open economy that are consistent with the twin deficits prediction.
6)If the real exchange rate is high, foreign goods:
7)In the basic version of a small open economy model, a reduction in the government’s budget deficit ____ net exports and the real exchange rate ____.
8)Protectionist policies implemented in a small open economy with a trade deficit have the effect of ____ the trade deficit and ____ the quantity of imports and exports.
9)If a country has a high rate of inflation relative to Canada, Canadian dollar will buy:
10) If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall:
11) Assume that some large foreign countries begin to subsidize investment by instituting an investment tax credit. Then, if world saving does not depend on the interest rate, world investment: