Assume That in a Small Open Economy with Full Employment

question 13

Essay

Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I = 400 - 20r, where r is the real interest rate in percent, and the world interest rate is 10 percent.
a. If government spending rises by 100, does investment change? What is the level of investment after the change?
b. Does the trade balance change if G rises by 100? If it changes, does it increase or decrease, and by how much?
c. Does net capital outflow change if G rises by 100? If it changes, does it increase or decrease, and by how much?
d. Will the real exchange rate rise, fall, or remain constant as a result of the change in G?

---

Definitions:

Myths

Widely held but false beliefs or ideas.

Succession Planning

A strategic process of identifying and preparing suitable employees to replace key roles within an organization in the future.

General Partnerships

A business partnership in which all partners share unlimited personal liability for the debts and obligations of the business and share in the profits and losses according to their agreement.

Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water.