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:

Characteristics

Features or qualities that define or distinguish an individual, object, or phenomenon.

Life

The condition that distinguishes organisms from inorganic objects and dead organisms, being manifested by growth through metabolism, reproduction, and the power of adaptation to the environment through changes originating internally.

Collective Unconscious

A concept in Jungian psychology referring to the part of the unconscious mind which is derived from ancestral memory and experience and is shared among a species.

Personal Unconscious

Jung's term for the layer of the unconscious that is made up of forgotten or suppressed experiences unique to an individual.