Suppose there is an increase in the government share of GDP.
(A)Draw a diagram showing the effect this has on the nongovernment share of GDP.What happens to interest rates?
(B)Suppose you observe that,concurrent with the increase in the government share of GDP,a decline in the net export share occurs.Is this a coincidence? Explain.
(C)If the decline in the net export share of GDP is substantial,what might this imply about the interest rate sensitivity of net exports?

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The Answer of Suppose there is an increase in the government share of GDP.
(A)Draw a diagram showing the effect this has on the nongovernment share of GDP.What happens to interest rates?
(B)Suppose you observe that,concurrent with the increase in the government share of GDP,a decline in the net export share occurs.Is this a coincidence? Explain.
(C)If the decline in the net export share of GDP is substantial,what might this imply about the interest rate sensitivity of net exports?

Suppose There Is an Increase in the Government Share of GDP