Hints: Equilibrium Condition is S=I. If economy is open r=r*. Assume that in a small open economy where full employment always prevails, national saving is 300. a. If domestic investment is given by I = 400 – 20r, where r is the real interest rate in percent, what would the equilibrium interest rate be if the economy were closed? b. If the economy is open and the world interest rate is 10 percent, what will investment be? c. What will the current account surplus or deficit be? What will net capital outflow be?
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Hints: Equilibrium Condition is S=I. If economy is open r=r*.
Assume that in a small open economy where full employment always prevails, national saving is 300.
a.
If domestic investment is given by I = 400 – 20r, where r is the real interest rate in
percent, what would the equilibrium interest rate be if the economy were closed?
b.
If the economy is open and the world interest rate is 10 percent, what will
investment be?
c.
What will the current account surplus or deficit be? What will net capital outflow
be?
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Assume that in a small open economy where full employment always prevails, national saving is 300.
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