II. Short Answer Questions (8points each, total 40points) If you find spaces giv
ID: 1154522 • Letter: I
Question
II. Short Answer Questions (8points each, total 40points) If you find spaces given is insufficient, please continue writing your answer in the backside of the page, make sure to indicate it clearly. 1. Fill in the table below with the direction of the variables that change in response to the events in the first column, use words "rises", "falls", "no change", "appreciates" "depreciates". IIlustrate with diagrams U.S. real U.S. real U.S. U.S.u.S. interest national private domestic capital rate of trade rate U.S. net exchange U.S savings savings investment outflow domestic balance currency The Fed increases discount rate while the president of the US cut taxes and increases tariff.Explanation / Answer
USA real interest rate will increase
Public savings will fall since taxes were reduced
USA private saving will rise and se since they are positively correlated with interest rate
Domestic investment will fall since it is negatively related to interest rate
US net capital outflow will decrease since higher interest rate means higher capital infliws
Exchange rate will appreciate due to above factor
US trade balance will rise