The us is small open economy and has balanced trade

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Assume the U.S. is a small open economy and has balanced trade. Suppose Congress is worried about the U.S. economy entering another recession and as a result increases infrastructure spending.

a. Using the LF model, illustrate and describe the effect of this policy on the U.S. trade balance.

b. Using the net exports model, illustrate and describe the effect of this policy on the U.S. real exchange rate.

Reference no: EM131002474

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