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As G increases, IS 1 shifts to IS 2 . At new equilibrium e', interest rate also increases and i > i*. Here,2 things are happening: a) there will now be capital inflow as a result capital A/c surplus b) Since, AD and Y increased, import demand will increase which will lead to current A/c deficit. Since, the magnitude of Capital A/c surplus will be much higher than the magnitude of current A/c deficit; there is BOP surplus. As a result domestic currency appreciates; dd for rupee has increased. So, there will be capital inflow which will bring back the interest rate to its original level. As a result, exports decrease and Imports increase (imports have become cheaper) [Net exports falls] IS shifts back to initial level and equilibrium in the goods market is restored. In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market.
Select the set in which the numbers are related in the same way as are the numbers of the following sets.
(NOTE : Operations should be performed ...
Select the related alternative from the given:
Spring: Summer :: _______.
Three of the following four number pairs are alike in some manner and one is different. Identify the one which is different.
Select the option that is related to the third term in the same way as the second term is related to the first term.
GAYH : IYWJ :: FBAO : ______
Select the option that is related to the third letter-cluster in the same way as the second letter-cluster is related to the first letter-cluster.
...If 38 @ 9 = 66 and 63 @ 43 = 122, then 29 @ 57 = '?'.
F/N : 30/182 : : H/P : ?
Select the set in which the numbers are NOT related in the same way as are the numbers of the following set. (NOTE: Operations should be performed on th...
If 83 × 24 = 5, 62 × 15 = 2, 45 × 33 = 3, then 96 × 42 = ?
Select the option that is related to the third term in the same way as the second term is related to the first term.
MODE : NLWV :: JAIL : ?