Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-4.Suppose that U.S.firms desire to purchase more equipment and build more factories and stores in the U.S.The effects of this are illustrated by
A)shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)shifting the demand curve in panel a to the right and the supply curve in panel c to the left.
C)shifting the supply curve in panel a to the right and the demand curve in panel c to the left.
D)shifting the supply curve in panel a to the right and the supply curve in panel c to the right.

Question

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-4.Suppose that U.S.firms desire to purchase more equipment and build more factories and stores in the U.S.The effects of this are illustrated by
A)shifting the demand curve in panel a to the right and the demand curve in panel c to the left. 
B)shifting the demand curve in panel a to the right and the supply curve in panel c to the left. 
C)shifting the supply curve in panel a to the right and the demand curve in panel c to the left. 
D)shifting the supply curve in panel a to the right and the supply curve in panel c to the right.

Quizplus · Accepted Answer

When U.S. firms desire to purchase more equipment and build more factories and stores in the U.S., this leads to an increase in investment demand in panel a, shifting the demand curve to the right. This increase in investment demand will raise the interest rate, which reduces net exports in panel c by appreciating the dollar, thereby shifting the supply curve to the left. Therefore, the effects of this are illustrated by shifting the demand curve in panel a to the right and the supply curve in panel c to the left, as shown in Figure 32-5.

Figure 32-5 Refer to This Diagram of the Open-Economy Macroeconomic Model to Model