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Government purchases and net exports remain constant

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Suppose that at the current interest rate of 4%, gross investment is $2,500, government purchases are $3,000, and net exports are $500.

a. Using the graph below, draw the investment schedule (I), government purchases schedule (G), net exports schedule (NX), and the combined I + G + NX line for this economy.

b. Now suppose interest rates increase to 6%. As a result, gross investment falls to $1,500 while government purchases and net exports remain constant at $3,000 and $500, respectively. Using the graph below, draw the new investment schedule (I), government purchases schedule (G), net exports schedule (NX), and the new combined I + G + NX line for this economy.

Reference no: EM131865296

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