How will the change in the exchange rate affect policy

Reference no: EM13190002

The country of Leverett is a small open economy. Suddenly, a change in world fashions makes exports of Leverett unpopular.

a. What happens to saving, investment, net exports, the interest rate, and the exchange rate?
b. The citizens of Leverett like to travel abroad. How will this change in the exchange rate affect them?
c. The fiscal policy makers of Leverett want to adjust taxes to maintain the exchange rate at its previous level. What should they do? If they do this, what are the overall effects on saving, investment, net exports, and the interest rate?

Reference no: EM13190002

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