Question

Suppose that American firms become more optimistic and, for any given interest rate, decide to increase investment expenditure today in new factories and office space. That is, the investment curve shift out. 1. How will this shift in the investment function affect output, interest rates, and the trade balance

Answer 1

Following are the response to the given question:

Step-by-step explanation:

Investing price falls as companies become increasingly negative about investment. Lowering prices for capital will shift the expenditure curve. When total expenditures drop, the IS curve moves to the left. It will lead to a decline in productivity and interest rates in the context of the IS-LM model. Next, consider how the current account will operate (which is the trade balance of the nation). This is what we're seeing as just a paradigm for just a real balance of currency fluctuations. The S-I line swings from S-I1 to S-I2 as expenditures decline from I1 to I2. The currency rate is down and private consumption has risen. Its idea is that even the currency is little valuable as exchange rates decline. Exports to the rest of the world are thus cheaper. Foreign exchange is appreciated as well as the domestic market needs costlier goods. Exports will therefore decrease. Export growth and import reductions are going to improve the trade balance. It will boost the bank account.