Consider a large open domestic economy that is a net borrower. (i) Draw a diagram showing
Question:
Consider a large open domestic economy that is a net borrower.
(i) Draw a diagram showing this situation (Your answer should include two graphs, one for the domestic economy and one for the foreign economy) (Note: Draw the two graphs side by side and clearly indicate the world interest rate as a single line going through both graphs)
(ii) What are the effects on the world real interest rate, domestic/foreign national saving, investment, the current account balance if current income rises in the foreign economy? (Note: I will not accept shifts shown in the answer for part (i) as an answer for this part. You must draw the graph again for this part and then show a shift.)
Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez