How is the IS curve altered by introducing international trade? What is the effect on IS...
- How is the IS curve altered by introducing international trade? What is the effect on IS curve of a rise in international trade?
Homework Answers
IS curve basically shows the goods market equilibrium where every combination of the interest rate and real GDP on the curve represents a goods market equilibrium. For a closed economy that is not open for international trade, this reflects a situation where AE is the sum of consumption government expenditure and investment. This implies that saving = investment.
When the international trade is initiated by the economy IS curve gets flatter, because it is now reflecting a situation where AE is the sum of consumption government expenditure investment and net exports. This implies that saving - investment = current account balance or net capital outflow.
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How is the IS curve altered by introducing
international trade? What is the effect on IS...
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