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Consider two open economies, A and B, characterized by the equations on the C = Co+ G, (Y - T) right. The parameters m, and

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Consider two open economies, A and B, characterized by the equations on the C = Co+ G, (Y - T) right. The parameters m, and x, are the propensities to import and export. Assume that 1 = d + d, Y the real exchange rate is fixed at a value of 1 and treat foreign income, Y*, as fixed. Also assume that taxes are fixed and that government purchases are IM = m, Y exogenous (i.e., decided by the government). We explore the effectiveness of changes in G under alternative assumptions about the propensity to import. X =X,Y* Given this information, which of the two economies do you think is larger? cy + dy =0.9 in both A and B CA. A my = 0.3 in A; m, = 0.6 in B OB. B O C. A and B are likely to be equally large. Suppose government purchases in each economy increase by one unit. (Assume the two economies do not trade with each other.) Output in A will by Output in B will by Net exports in A will by Net exports in B will by

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