Reference no: EM131263502

Suppose that governments around the world begin to raise taxes policy in order to Stimulate economic activity in their countries. Use the long-run model of a small open Economy to illustrate graphically the impact of this fiscal policy by foreigners on, (a) the Foreign economies loanable funds market including the real interest rates, and on, (b) the U.S. exchange rate and the trade balance. Assume that the US economy starts from a position of trade balance, i.e., exports equal Imports. Be sure to label: i. the axes; ii. The curves; iii. The initial equilibrium values; iv. The direction the curves shift; and v. the new long-run equilibrium values for both the US and the foreign economies. Note: you will need two (separate) graphs for this Question.