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Expectation of declining housing prices

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Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. The nation has highly mobile international capital markets and a flexible exchange rate system. Use the three sector model to solve the following problems.

11.3. Net exports will ______ and the current account will _______.

A. fall, rise
B. rise, rise
C. fall, fall
D. rise, fall

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Net exports will rise and the current account will rise (choice B).

I found this buried a little in the same text. The author goes back to the example of the peso to explain the concept, and talks about when we have a ...

Solution Summary

Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. The nation has highly mobile international capital markets and a flexible exchange rate system. Use the three sector model to solve the following problems.

11.3. Net exports will ______ and the current account will _______.

A. fall, rise
B. rise, rise
C. fall, fall
D. rise, fall

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