1. Consider a small open economy with perfect capital mobility. The economy now goes to war, and government expenditures increase. Private savings and taxes do not change. Investment demand remains dependent upon r, but does not shift. What happens to the trade balance (X-M), the real exchange rate (() and, over time, net foreign assets (NFA)? (a) X-M t, c t, NFA + (b) X-M , c J, NFA + (c) X-M J, Et, NFA + (d) X-M t, c J, NFA 4 (e) X-M 1, c t, NFA + (f) None of the above. 2. The development of a new line of Japanese cars increases British demand for foreign goods, at any given real exchange rate. There is no change in overall consumption spending. What happens to the trade balance (X-M), the real exchange rate () and, over time, net foreign assets (NFA)? (a) X-M t, et, NFA + (b) X-M t, c 4, NFA + (c) X-M J, Et, NFA + (d) X-M t, c J, NFA 4 (e) X-M t, et, NFA (f) None of these (i.e. X-M, 6, or NFA) changes. (g) None of the above