Consider a small open economy with desired national saving of Sd = 20 + 200rw and desired investment of Id = 30 - 200rw.Calculate national saving, investment, and the current account balance in equilibrium when the real world interest rate is(a)rw = 0.025.(b)rw = 0.05.(c)rw = 0.0.(d)Now suppose something causes desired national saving to increase by 10, so that it is now Sd = 30 + 200rw. Repeat parts (a), (b), and (c).(e)Suppose, with desired national saving at its original level of Sd = 20 + 200rw, something causes desired investment to rise by 10, to Id = 40 - 200rw. Repeat parts (a), (b), and (c).
What will be an ideal response?
| (a) | S = 25, I = 25, CA = 0. |
| (b) | S = 30, I = 20, CA = 10. |
| (c) | S = 20, I = 30, CA = -10. |
| (d) | rw = 0.025: S = 35, I = 25, CA = 10. |
rw = 0.000: S = 30, I = 30, CA = 0.
| (e) | rw = 0.025: S = 25, I = 35, CA = -10. |
rw = 0.000: S = 20, I = 40, CA = -20.
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