E2 Consider the small open economy of Albania that is currently running a trade deficit atworld real interest rate of rw. Answer the following questions using a graphicalrepresentation of planned saving and investment model in the small open economy.Graphically discuss the effects of the following events on the domestic saving,investment, and the country's trade balance. Treat each case separately.rwrSaving (S)Investment (1)S and IGiven the assumption that Albania is a small open economy and currentlyrunning a trade deficit, the world interest rate is lower than the real interest ratethat would have prevailed if Albania were a closed economy.This is shown on S-I diagram.a. The government of Albania, as a condition to join the EU in the future, has toreduce its government budget deficit by reducing government spending.b. Increased optimism about the future economic activity in Albania results inincrease in private domestic investment.c. In response to new policies, domestic consumption spending increases.(Treat each case separately by carefully labelling each diagram by showing the directionof shifts)

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Consider the small open economy of Albania that is currently running a trade deficit a world real interest rate of rw. Answer the following questions using a graphical representation of planned saving and investment model in the small open economy. Graphically discuss the effects of the following events on the domestic saving, investment, and the country's trade balance. Treat each case separately. Saving (S)

Consider the small open economy of Albania that is currently running a trade deficit a world real interest rate of rw. Answer the following questions using a graphical representation of planned saving and investment model in the small open economy. Graphically discuss the effects of the following events on the domestic saving, investment, and the country's trade balance. Treat each case separately. Saving (S)

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 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...

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