to investors." Would deficit reduction in fact raise the exports at any given exchange rate?
value of the dollar? Explain. b. Use a three-panel diagram to show the effect of this
shift in net exports on the U.S. real exchange rate
3. Suppose that Congress passes an investment tax credit,
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and trade balance.
which subsidizes domestic investment. How does this
698 PA R T E L E V E N THE MACROECONOMICS OF OPEN ECONOMIES
c. Is the claim in the popular press consistent with the b. If the elasticity of U.S. exports with respect to the
model in this chapter? Does a decline in the quality real exchange rate is very low,
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