Problem
Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. Show in terms of graphs and by discussion.
1. In the market for loanable funds which curve(s) does this policy change shift? Which direction does it shift?
2. What does this policy change do to the equilibrium values of the interest rate and the quantity of loanable funds?
3. What does this policy change do to net capital outflows? Defend your answer.
4. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?
5. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.