Question

Use the model of the small open economy (Apply the small open economy model of real exchange rate determination ) to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events. draw a graph (be sure to label all points, shifts and curves) and provide a short verbal analysis of the impact on the trade balance, the real exchange rate and the nominal exchange rate).

a. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars

Answer 1