Consider a large open economy. What are the effects, in equilibrium, on the world real interest rate, domestic national saving, domestic investment, the domestic current account balance, foreign national saving, foreign investment, and the foreign
current account balance in each of the following scenarios? Show a diagram to illustrate your results. (a) current income rises in the foreign country (b) the future marginal product of capital rises in the domestic country (c) wealth rises in the foreign country
(a) The foreign savings curve shifts right, causing rw to fall. Domestic economy: S falls, I rises, CA falls. Foreign economy: SFor rises, IFor rises, CAFor rises (because CA falls).
(b) The domestic investment curve shifts right, causing rw to rise. Domestic economy: S rises, I rises, CA falls (because CAFor rises). Foreign economy: SFor rises, IFor falls, CAFor rises.
(c) The foreign savings curve shifts left, causing rw to rise. Domestic economy: S rises, I falls, CA rises. Foreign economy: SFor falls, IFor falls, CAFor falls (because CA rises).
You might also like to view...
The employment-to-population ratio is defined as
A) total employment divided by labor hours then multiplied by 100. B) the labor force divided by the working-age population then multiplied by 100. C) total employment divided by the labor force then multiplied by 100. D) total employment divided by the working-age population then multiplied by 100.
Suppose that a producer’s supply curve is estimated to be P = 15 + 3Q and that the product is sold at P = $45. At this price level, the firm’s producer surplus is
a. $2250 b. $150 c. $300 d. $10