Assume That in a Small Open Economy Where Full Employment

question 6

Essay

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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Definitions:

Larceny

The act of taking and carrying away the personal property of another without the right to do so.

Defrauding

The act of obtaining something of value through deceit or trickery.

Bribery

The act of offering, giving, receiving, or soliciting something of value to influence official action or the discharge of a public duty.

Premeditation

The act of planning or plotting in advance, especially with intent to commit a specific action or crime.