Whats the potential consequence of this policy on home

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Government sometimes restricts international borrowing and lending by taxing them. In a two-period, two-country endowment model, if the Home's position is r^A < r^A_* , what's the optimal policy for the Home's government to maximize Home's welfare? Please illustrate your points in the figure. What's the potential consequence of this policy on Home and Foreign economies?

Reference no: EM13772420

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