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Assume that Chile, the home country, is a small open economy; and the United States, the foreign country, is a large open economy. The US

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Assume that Chile, the home country, is a small open economy; and the United States, the foreign country, is a large open economy. The US government raises its spending. Using the following graph of saving and investment functions for Chile, illustrate graphically the effect of an increase in US government spending on the trade balance and net capital outflows in Chile. Begin your analysis with a balanced trade in Chile. [4] A B S , - I, S z S

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