Equilibrium interest rate and domestic current account
Course:- Business Economics
Reference No.:- EM13891913

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Business Economics

1. Now assume that the economy is open and that the world interest rate is determined on the world market instead of in the domestic economy. Use a two-country model with initial current accounts equal to zero. Use world saving - investment diagrams to answer the questions below.

a. How does an increase in domestic wealth affect the world equilibrium interest rate and the domestic current account?

b. How does an equal increase in current domestic taxes and government spending affect the world equilibrium interest rate and the domestic current account?

c. How does an increase in domestic total factor productivity affect the world equilibrium interest rate and the domestic current account?

2. Now turn to consider a small open economy. How does each of the shocks above affect the domestic current account? Your answer will have three savings investment graphs, one for each shock above.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
Based on the case “Cola Wars Continue: Coke and Pepsi in 2010,” use game theory approach/analysis to explain the competitive behavior of Coke and Pepsi making specific referen
Pretend that you have just been surprised with a genuine e-mail that says you have just been selected by your favorite pizza delivery company that every day for the next month
Jean-Pierre consumes only apples and bananas. He prefers more apples to less, but he gets tired of bananas. If he consumes fewer than 28 bananas per week, he thinks that one b
Take some time to think about the ways in which your learning in this class relates to the real world. Has the knowledge you gained been valuable in helping you understand o
Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five
The impact of Medicare and Medicaid costs is expected to be even more important for the future debt of the U.S. than is social security. Where will most of these financial pre
What is the golden rule savings rate? How does it depend on the depreciation rate and the marginal product of captial? If the current savings rate is below the golden rule sav
Use the principles of supply and demand to address a predetermined goal (set by the student). Be clear on what the current market indicates and why and what your future goal