Suppose That the World Consists of Only Two Countries, a and B

question 8

Essay

Suppose that the world consists of only two countries, A and B, of relatively equal sizes. The world interest rate in such a model is some average of the autarkic (no trade) interest rates in each of the two countries.
a. Draw "parallel" loanable funds markets for the two countries and show the position of the world interest rate. (Hint: What relationship must exist between the NCOs of the two countries?)
b. Suppose country A enacts laws that induce people to save more. Show the effects of such laws on each country's domestic amounts saved and invested.
c. In the currency-exchange diagrams for both countries, show the effect of country A's savings policies on both countries' exchange rates and net exports.

---

Definitions:

Independent Contractor

is an individual who provides services to another entity under terms specified in a contract or agreement, without being legally considered an employee.

Liability Coverage

Insurance that provides protection against claims resulting from injuries and damage to people and/or property.

Homeowner's Insurance

A type of property insurance that covers losses and damages to an individual's house and assets in the home.

Business Activities

All actions undertaken by a company as part of its pursuit of profit, including production, sales, and service offerings.