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Using the small open economy (traditional view) model analyze the impact of reducing a government budget's deficit by increasing (lump-sum) taxes on household income (

Using the small open economy (traditional view) model analyze the impact of reducing a government budget's deficit by increasing (lump-sum) taxes on household income (Hint: Assume the Ricardian view does not hold).

State in words what happens to i) national saving (S), ii) investment (INVT), iii) consumption (C), iv) real exchange rate (RER), and v) net exports (NX), respectively.

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