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Business, 06.01.2021 17:40 DatBoiCedd

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, thereby public saving.

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Initially, a reduction in export subsidies decreases net exports at any given real exchange rate, ca...

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