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Consider a Small Open Economy with Desired National Saving of Sd

Question 62

Essay

Consider a small open economy with desired national saving of Sd = 20 + 200rw and desired investment of Id = 30 - 200rw.
Calculate national saving,investment,and the current account balance in equilibrium when the real world interest rate is
(a)rw = 0.025.
(b)rw = 0.05.
(c)rw = 0.0.
(d)Now suppose something causes desired national saving to increase by 10,so that it is now Sd = 30 + 200rw.Repeat parts (a),(b),and (c).
(e)Suppose,with desired national saving at its original level of Sd = 20 + 200rw,something causes desired investment to rise by 10,to Id = 40 - 200rw.Repeat parts (a),(b),and (c).

Correct Answer:

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(a)S = 25,I = 25,CA = 0.
(b)S = 30,I = 2...

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