Current Account equilibrium is defined as CA = x₁YW + x₂Rm₁Y+ m₂R and Capital Account equilibrium as CP = K(i - iW) with Balance of Payments equilibrium being the sum of the two. Justify the shape of the respective conditions of equilibrium (in interest rate and output space), and why the approximation of Balance of Payment equilibrium by a horizontal line is plausible.

Current Account equilibrium is defined as CA = x₁YW + x₂Rm₁Y+ m₂R and Capital Account equilibrium as CP = K(i - iW) with Balance of Payments equilibrium being the sum of the two. Justify the shape of the respective conditions of equilibrium (in interest rate and output space), and why the approximation of Balance of Payment equilibrium by a horizontal line is plausible.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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