Business, 30.05.2020 23:58, breannaking9734

Suppose the United States decides to reduce export subsidies on U. S. agricultural products, but it does not decrease taxes or increase any other government spending. Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, causing the demand for dollars in the foreign exchange market to decrease. This leads to a decrease in the real exchange rate, which, in turn, decreases imports to negate any decrease in exports, leaving the equilibrium quantity of net exports and the trade deficit unchanged at this point.

However, the reduction in expenditure on export subsidies the fiscal deficit, therebypublic saving.

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Suppose the United States decides to reduce export subsidies on U. S. agricultural products, but it...