A large open economy has desired national saving of S^d = 1200 + 1000r^w,and desired national investment of I^d = 1000 - 500r^w.The foreign economy has desired national saving of = 1300 + 1000r^w,and desired national investment of = 1800 - 500r^w.The equilibrium world real interest rate equals A)0)05. B)0)10. C)0)15. D)0)20.

Question

Quizplus · Accepted Answer

In equilibrium, world desired saving equals world desired investment. Therefore, S^d + 11ea43ac_f640_d0cb_ad0c_757a81cf11a4_TB3058_11 = I^d + 11ea43ac_f640_d0cc_ad0c_3b94e3fc2664_TB3058_11 Substituting the given equations, we get: 3200 + 2000r^w = 2800 - 1000r^w Simplifying further, 3000r^w = 400 r^w = 0.133 ≈ 0.10 (rounded to two decimal places) Therefore, the equilibrium world real interest rate is 0.10 or 10%. The correct choice is B.

A Large Open Economy Has Desired National Saving of Sd

A Large Open Economy Has Desired National Saving of S^d