If a war broke out abroad, it would affect the US Economy in many ways. Use the

Question

If a war broke out abroad, it would affect the US Economy in many ways. Use the model of the large open economy to examine each of the following effects of such a war. What happens in the U.S. to saving, investment, the trade balance, the interest rate, and the exchange rate? (Consider each of the following separately)

A. The US Govt, fearing it may need to enter the war, increases its purchases of military equipment.

B. Other countries raise their demand for high-tech weapons, a major export of the US

C. The war makes US firms uncertain about the future and the firms delay some investment projects.

D. The war makes U.S. consumers uncertain about the future and the consumers save more in response.

E. Americans become apprehensive about traveling abroad, so more of them spend their vacations in the U.S.

F. Foreign investors seek a safe haven for their portfolios in the United States.

Explanation / Answer

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