Worth: Mankiw Economics 5e 320 PART IV Business Cycle Theory: The Economy in the Short Run (a) The Shift in the Net-Exports Schedule A Trade restriction Under Exchange rate, e Floating Exchange Rates A tariff or an import quota shifts the net-exports 1. A trade restriction schedule in panel (a) to the shifts the NX curve right. As a result, the /S* outward curve in panel (b)shifts to he right, raising the exchange Net exports, NX b)The Change in the Economys Equilibrium Exchange rate, e 3... increasi the exchange 2.... which shifts the right, as in Figure 12-6. This shift in the net-exports schedule increases planned expenditure and thus moves the IS curve to the right. Because the LM curve is vertical, the trade restriction raises the exchange rate but does not affect in Often a stated goal of policies to restrict trade is to alter the trade balance NX Yet, as we first saw in Chapter 5, such policies do not necessarily have that effect. The same conclusion holds in the Mundell-Fleming model under floating e Recall that NX(e=r-c(r-T)-I(r)-G User JoENA: Job EFFo1428: 6264_ch12: Pg 320: 27515 #/eps at 100smml Mon,Feb18,200212:44User JOEWA:Job EFF01428:6264_ch12:Pg 320:27515#/eps at 100% *27515* Mon, Feb 18, 2002 12:44 AM right, as in Figure 12-6. This shift in the net-exports schedule increases planned expenditure and thus moves the IS* curve to the right. Because the LM* curve is vertical, the trade restriction raises the exchange rate but does not affect income. Often a stated goal of policies to restrict trade is to alter the trade balance NX. Yet, as we first saw in Chapter 5, such policies do not necessarily have that effect. The same conclusion holds in the Mundell–Fleming model under floating ex￾change rates. Recall that NX(e) = Y − C(Y − T) − I(r*) − G. 320 | PART IV Business Cycle Theory: The Economy in the Short Run figure 12-6 Exchange rate, e Exchange rate, e Net exports, NX Income, output, Y NX2 NX1 IS*2 LM* IS*1 3. . . . increasing the exchange rate . . . 4. . . . and leaving income the same. (a) The Shift in the Net-Exports Schedule 1. A trade restriction shifts the NX curve outward, ... (b) The Change in the Economy, s Equilibrium 2. . . . which shifts the IS* curve outward, ... A Trade Restriction Under Floating Exchange Rates A tariff or an import quota shifts the net-exports schedule in panel (a) to the right. As a result, the IS* curve in panel (b) shifts to the right, raising the exchange rate and leaving income unchanged