Why government budget deficits crowd out private

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Reference no: EM131729983

Explain why government budget deficits crowd out private investment spending in a closed economy, but crowd out net exports in a small open economy. Assume prices are flexible and that factors of production are fully employed in both economies. Use the basic version of the open-economy model where net exports is function of real exchange rate. Use diagrams to explain your answer.

Reference no: EM131729983

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