Current Account equilibrium is defined as CA = x₁YW + x₂Rm₁Y+ m₂R and Capital Account equilibrium as CP = K(i - iW) with Balance of Payments equilibrium being the sum of the two. Justify the shape of the respective conditions of equilibrium (in interest rate and output space), and why the approximation of Balance of Payment equilibrium by a horizontal line is plausible.

Current Account equilibrium is defined as CA = x₁YW + x₂Rm₁Y+ m₂R and Capital Account equilibrium as CP = K(i - iW) with Balance of Payments equilibrium being the sum of the two. Justify the shape of the respective conditions of equilibrium (in interest rate and output space), and why the approximation of Balance of Payment equilibrium by a horizontal line is plausible.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 4E

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