Budget deficit to budget surplus might affect exchange rate

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Reference no: EM13802467

Find the equilibrium level of GDP demanded in an economy in which investment is always $300, net exports are always -$50, the government budget is balanced with purchases and taxes both equal to $400, and the consumption function is described by the following algebraic equation:

C=150 + 0.75D

(Hint: Do not forget that DI=Y-T)

Explain how a shift from a government budget deficit to a budget surplus might affect the exchange rate.

Reference no: EM13802467

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