Question

2. Consider a large open domestic economy with a financial account surplus. i. Draw a diagram showing this situation (Your answer should include two graphs, one for the omestic economy and one for the foreign economy). (10 Points)- 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, in equilibrium, on the world real interest rate, domestic national saving, domestic investment, the domestic current account balance, foreign national saving, foreign investment, and the foreign current account balance if wealth rises in the foreign country?. Show a diagram to illustrate your results. (10 Points)

Answer 1

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