Assume That in a Small Open Economy Where Full Employment $I = 400 - 20$

question 61

Essay

Assume that in a small open economy where full employment always prevails, national saving is 300. a. If domestic investment is given by $I = 400 - 20$ r, 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:

Instrument Payable

A financial document promising to pay a specified amount of money to a person in possession or to their order.

Time Paper

A financial document or instrument that is payable at a future specified date, not upon demand or presentation.

Negotiable Instrument

A written document guaranteeing the payment of a specific amount of money, either on-demand or at a set time, with the payee’s name either mentioned or left blank.

Separate Agreement

An individual contract related to, but distinct from, another contract, often detailing specific aspects or obligations not covered in the primary agreement.