Consider a Small Open Economy in Equilibrium

question 11

Essay

Consider a small open economy in equilibrium.What happens to the real interest rate,national saving,investment,and the current account balance in equilibrium in each of the following situations (each taken separately).Explain which curve shifts and why,and show a diagram explaining your results.(You may assume that none of the shocks is large enough to significantly affect labor supply or labor demand significantly.)
(a)wealth declines
(b)business taxes decline
(c)income rises temporarily

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Definitions:

Notes Payable

Written agreements where a borrower agrees to pay back a specified sum of money to a lender at a future date, typically with interest.

Sales Taxes Payable

Liabilities owed to local, state, or federal tax authorities from sales made, collected by the company from customers at the time of sale.

Interest Charged

Interest charged refers to the cost of borrowing money, usually expressed as a percentage of the principal loan amount to be paid over a specific period.

Sales Taxes Payable

Liabilities accounted for the sales tax collected from customers on taxable transactions, which are due to be paid to the relevant tax authorities.