In a large open economy,the home country's saving and investment equations are: S^d = 200 + 700r^w and I^d = 300 - 200r^w.The foreign country's saving and investment equations are: S^d = 50 + 300r^w and I^d = 75 - 50r^w.In equilibrium,the world real interest rate =

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Quizplus · Accepted Answer

The world real interest rate is determined by the intersection of the world saving and investment curves. The world saving curve is the horizontal sum of the home and foreign saving curves, and the world investment curve is the horizontal sum of the home and foreign investment curves. In this case, the world saving curve is S^d = 250 + 1000r^w and the world investment curve is I^d = 375 - 250r^w. The intersection of these two curves occurs at r^w = 0.10.

In a Large Open Economy,the Home Country's Saving and Investment