Consider a large one economy where: Cd= 1+.9(Y-T)-150r Id=80-200r y=250 T=40 G=50 NFP=0 If the saving schedule for the rest of the world is Sd=15+516.6r and its investment schedule is Id=120-300r, then:
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Consider a large one economy where:
Cd= 1+.9(Y-T)-150r
Id=80-200r
y=250 T=40 G=50 NFP=0
If the saving schedule for the rest of the world is Sd=15+516.6r and its investment schedule is Id=120-300r, then:
a) What is the equilibrium world interest rate?
b) What is the current account for the large open economy?
c) What is the financial account for the large open economy?
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- Consider a small open economy. Assume that GDP (Y) is 5000. Consumption (C) is given by the equation C = 1000 + 0.25(Y-T). Investment (I) is given by the equation I = 1500 – 50r, where r is the real interest rate in percentage points. The world interest rate is actually 5% (r*=5). Taxes (T) are 1000 and government spending (G) is 1500. Net exports are given by the equation NX=500-250Ɛ. Suppose T and G at their initial values (1000 and 1500). Suppose there is a shift in the global supply of funds, so that the new world interest rate becomes 3%. Compute the equilibrium real exchange rate. Represent the equilibrium graphically and interpret your result.In a small open economy, if domestic investment equals $70 billion, domestic private saving equals $40 billion, and government saving equals $30 billion, then the trade balance is: a. -$30 billion b. $0 billion c. $30 billion d. $40 billionDraw a diagram for Saving and Investment in a small open economy.Assume the world real interest rate is above the closed equilibrium interestrate for the country you drew. Is this country a foreign lender or foreignborrower? Explain with the intuition of the saving and investment functions
- In an open economy, if exports equal $8 billion and imports equal $3 billion, then there is a trade ______ and ______ net capital outflow. Group of answer choices deficit; positive deficit; negative surplus; positive surplus; negativeAssume a two-period small open economy model, where the national product is 50 in the current period, and 88 in the future period. The world real interest rate is 10% per period. The representative consumer has the following utility function: U(c,G,c’,G’) = ln(c+G) + ln(c’+G’). a) What are the optimal consumption plus government spending in the current and in the future period? What is the current account surplus? Show this in a diagram. b) Now, suppose that governments in the rest of the world impose a tax on lending to foreigners of 5%. Determine how this affects consumption plus government spending in the present and the future, and the current account surplus. Explain your results. c) Suppose that governments in the rest of the world still impose a tax on lending to foreigners of 5%. However, the national country found a huge reserve of oil and the current period income increased to 100. The Determine how this affects consumption plus government spending in the present and the…In an open economy,a change in domestic net foreign asset depends on how much is saved, and on investment,which reduces the domestic net foreign asset. True or False.
- “There has been a turnaround from the sizeable net outflows over the past two years when South African companies stepped up their efforts to internationalise their businesses. The shift in direct investment trends made a small contribution to improving the financial account of South Africa’s balance of payments, which showed a surplus of 3.5% for the third quarter, up from 1.3% the previous quarter. The Reserve Bank’s quarterly bulletin shows that capital inflows were more than adequate to finance the deficit on the current account deficit of the balance of payments, which widened to 4.1% from a revised 2.9% in the third quarter. Economists expect that the current account deficit, which tends to be a driver of the rand exchange rate, will narrow again in the fourth quarter as exports pick up again” (Joffe, 2016). In your opinion, can the government keep export demand stimulated such that the balance of payments remains dazzlingThe open economy multiplier is calculated as follows: A. 1/[1minus−(marginal propensity to consume + marginal propensity to invest)] B. 1/[1minus−(marginal propensity to consume + marginal propensity to import)] C. 1/[1minus−(marginal propensity to consume + marginal propensity to invest + marginal propensity to import)] D. 1/[1minus−(marginal propensity to consume + marginal propensity to invest minus− marginal propensity to import)For a small open economy with production and investment, what are the immediate effects on output and the current account when there is a rise in the world interest rate?
- Suppose in the goods market equilibrium of an open economy, saving is $6 billion, and investment is $8 billion. Assume there is no measurement error. Then capital and financial account balance is equal to:Using examples and clearly labelled graphs where applicable answer the following question: Under what circumstances might an increase in worldwide interest rates r* be beneficial for a small open economy (SOE)? ExplainIn the open-economy macroeconomic model, the key determinant of net capital outflow is the A. real interest rate. When the real interest rate rises, net capital outflow rises. B. real interest rate. When the real interest rate rises, net capital outflow falls. C. real exchange rate. When the real exchange rate rises, net capital outflow rises. D. real exchange rate. When the real exchange rate rises, net capital outflow falls.