Graphically Illustrate the Traditional View of the Short-Run Impacts of a Debt-Financed

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The Answer is ​ <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB8615/11eb72d4_29cd_d301_8534_0d97c737bee2_TB8615_00.jpg" alt="​   Panel A shows that in a closed economy in the short run, the debt-financed tax cut shifts the IS curve to the right and leads to higher output and higher interest rates. Panel B shows that in a small open economy with a flexible exchange rate, the debt-financed tax cut results in no change in output but a higher exchange rate. The higher exchange rate reduces net exports, which offsets the expansionary impact on output of the tax cut." class="answers-bank-image d-block" rel="preload" > Panel A shows that in a closed economy in the short run, the debt-financed tax cut shifts the IS curve to the right and leads to higher output and higher interest rates. Panel B shows that in a small open economy with a flexible exchange rate, the debt-financed tax cut results in no change in output but a higher exchange rate. The higher exchange rate reduces net exports, which offsets the expansionary impact on output of the tax cut.

Graphically Illustrate the Traditional View of the Short-Run Impacts of a Debt-Financed

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