Assume we have a small open economy. The government budget is in balance (T-G=0) and Savings equals investment (S-I=0).   A. Suppose the government increases G by 100, holding taxes constant. Given that Savings = Private Savings + Public savings. What happens to S-I? Be specific (numbers).   B. Given that I = I (r), what happens to the real interest rate? Does it rise or fall? Why?   C. Given that in A there was a change in the S-I, what happens to Net Exports? Be specific (numbers). Why?

ENGR.ECONOMIC ANALYSIS
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Assume we have a small open economy. The government budget is in balance (T-G=0) and Savings equals investment (S-I=0).

 

A. Suppose the government increases G by 100, holding taxes constant. Given that Savings = Private Savings + Public savings. What happens to S-I? Be specific (numbers).

 

B. Given that I = I (r), what happens to the real interest rate? Does it rise or fall? Why?

 

C. Given that in A there was a change in the S-I, what happens to Net Exports? Be specific (numbers). Why? 

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