(I - S) + (G- T) + X - M = 0, where S = saving, I = investment, G = government spending, T = net taxes, and X-M = net exports.

(a) Suppose that it appears that the US government is planning to increase G relative to T by a substantial amount. How will this affect net exports?

(b) Suppose that the value of dollar relative to the Euro and the Yen is expected to fall substantially and your firm has been planning to raise large sums of money to finance an expansion of plant and equipment in the United States. How will this affect your plans? Repeat for the case in which your firm is trying to decide whether to build the plant in the United States or in Europe.