1. A country's private and public savings are defined as Sh = Y T C, and Sg = T G, respectively, where Y is the GDP, T is the government's tax revenues, C private consumption, and G the government's expenditures.

(a) Show that national saving S = Y C G equals the sum of private and public savings

(b) Show that if the government increase its expenditures without corresponding increase in taxes, both the public and national saving will decline

(c) In case (b), what would happen to the country's trade balance (NX) and its real exchange rate?

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