Assume that a small open economy is currently running a current account surplus. A) On a graph, show the goods market equilibrium for this small open economy. Be sure to label the savings and investment curves, the world real interest rate, and the current account surplus. B) On a graph, show what will happen to the economy from part A when firms believe that their future MPK will fall in response to new government regulations. Does the CA surplus increase, decrease, or stay the same? What about the world interest rate?

Assume that a small open economy is currently running a current account surplus. A) On a graph, show the goods market equilibrium for this small open economy. Be sure to label the savings and investment curves, the world real interest rate, and the current account surplus. B) On a graph, show what will happen to the economy from part A when firms believe that their future MPK will fall in response to new government regulations. Does the CA surplus increase, decrease, or stay the same? What about the world interest rate?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 46P: Imagine that the economy of Germany finds itself in the following situation: the government budget...

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