Suppose That in an Open Economy the Government Engages in Extensive

question 14

Essay

Suppose that in an open economy the government engages in extensive spending financed through bond sales that raise interest rates in the economy. Is it possible for net exports to fall and offset the government's AD stimulus to some extent?
B. If interest rates are high in the economy, there will be a net inflow of funds from other countries. The increased demand for the local currency will cause it to appreciate. This will reduce exports and increase imports, and thus net exports (X-M) will fall and negatively impact AD.

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Definitions:

Directional

Pertains to specifying the direction of an effect or relationship in hypotheses or experimental research.

Non-directional

Hypotheses that predict a relationship between variables without specifying the direction of the relationship.

Null Hypothesis

A statistical hypothesis that assumes no significant difference or effect exists.

Means

The average of a set of numbers, calculated by summing the numbers and then dividing by the count of those numbers, used to summarize data.