4. Small Open Economy and trade deficit Suppose that Ecuador is a small open economy running a trade deficit. a. In a plot that has the interest rate in the vertical axis and S and I in the horizontal axis, show where the world interest rate r* should be relative to the "closed-economy equilibrium interest rate", rc. b. Show the effect on Savings, Investment and the real interest rate of an increase in technological progress in Ecuador that is expected to increase TFP. c. What is the effect of this shock on the trade balance? Show the trade balance in your plot.
4. Small Open Economy and trade deficit Suppose that Ecuador is a small open economy running a trade deficit. a. In a plot that has the interest rate in the vertical axis and S and I in the horizontal axis, show where the world interest rate r* should be relative to the "closed-economy equilibrium interest rate", rc. b. Show the effect on Savings, Investment and the real interest rate of an increase in technological progress in Ecuador that is expected to increase TFP. c. What is the effect of this shock on the trade balance? Show the trade balance in your plot.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter23: The International Trade And Capital Flows
Section: Chapter Questions
Problem 46P: Imagine that the economy of Germany finds itself in the following situation: the government budget...
Related questions
Question
![4. Small Open Economy and trade deficit Suppose that Ecuador is a small open economy running
a trade deficit.
a. In a plot that has the interest rate in the vertical axis and S and I in the horizontal axis, show
where the world interest rate r* should be relative to the "closed-economy equilibrium interest
rate",
rc.
b. Show the effect on Savings, Investment and the real interest rate of an increase in technological
progress in Ecuador that is expected to increase TFP.
c. What is the effect of this shock on the trade balance? Show the trade balance in your plot.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00b4ea2c-5b53-4abb-862f-25e9db867524%2Fb6c4cfaf-f525-484c-9e91-d00569d3b6a2%2Fl661vc_processed.png&w=3840&q=75)
Transcribed Image Text:4. Small Open Economy and trade deficit Suppose that Ecuador is a small open economy running
a trade deficit.
a. In a plot that has the interest rate in the vertical axis and S and I in the horizontal axis, show
where the world interest rate r* should be relative to the "closed-economy equilibrium interest
rate",
rc.
b. Show the effect on Savings, Investment and the real interest rate of an increase in technological
progress in Ecuador that is expected to increase TFP.
c. What is the effect of this shock on the trade balance? Show the trade balance in your plot.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![MACROECONOMICS](https://www.bartleby.com/isbn_cover_images/9781337794985/9781337794985_smallCoverImage.gif)
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![MACROECONOMICS](https://www.bartleby.com/isbn_cover_images/9781337794985/9781337794985_smallCoverImage.gif)