Question 1 a) A country's saving has increased by 3%, causing a 2% increase in Investment. Is this country a closed economy, a small open economy, or a large open economy? (Carefully Explain) b) Suppose a country's desired level of Investment increases by $2 Billion. Compare the change in Investment in a closed economy, a small open economy, and a large open economy.

Question 2 Consider the US to be a large open economy. a) How will a significant increase in U.S. housing prices affect Saving, Investment, and Consumption in the U.S.? b) How will this affect Saving, Investment, and Consumption in the rest of the world?

Question 3 Suppose that income increases by 10% in a country. How will this affect domestic Investment and Saving?

Question 4 The government of a small open economy is concerned about the size of its current account deficit. a) Is domestic Investment greater or less than domestic Saving? b) Suppose the government placed a tax on interest earned on foreign assets. How would this affect domestic Saving and Investment? c) Suppose the government placed a ban on trade with the rest of the world. How would this affect domestic Saving and Investment?

Question 5 For a small open economy, Consumption and Investment are described as follows: 1000 5000 10000 1000 C r I r a) If Y = 10,000 and r = 0.1, find the equilibrium level of Investment, Saving, and the Current Account.