Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. Both countries have a zero current account balance initially. When answering the following questions, clearly label the lines and show the changes in the graph provided below. Give an intuitive explanation for the effects in each case. b-What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases? c- What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock?
Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. Both countries have a zero current account balance initially. When answering the following questions, clearly label the lines and show the changes in the graph provided below. Give an intuitive explanation for the effects in each case.
b-What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases?
c- What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock?
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