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How savings decisions abroad could influence trade defict

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Reference no: EM132606411

Using the sectoral balances framework, explain how savings decisions abroad could influence the trade deficit, and therefore the government budget position if the private sector is to remain in a surplus position (i.e. net saving position) (I<s). Explain how the operation of monetary policy targeting the interest rate rather than the money supply would change the impact of changes in government spending on exchange rate movements.

Reference no: EM132606411

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