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November 23, 2014

Homework Help: Macroeconomics - NX & Tax

Posted by Anonymous on Monday, December 14, 2009 at 11:20am.

In a small open economy, if the government adopts a policy that lowers imports, then that policy raises the real exchange rate and does not change net exports.

I don't get the above statement. From my understanding, lower imports means higher net exports from NX = Exports - Imports. They are inversely related. Since NX is higher, that means e is lower and E must be lower as well (they are positively related). Please explain why the statement above is true and mine is not.

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