Question

Haiti is an open economy located in the West Indies, on the island of Hispaniola. In 2010 a massive earthquake brought devastation and chaos to the impoverished island and, among other things, destroyed a great deal of the country’s capital stock. The reduction in the capital stock had a significant reduction in the country’s output and income. Assume that the country’s marginal propensity to consume is less than unity, resulting in a decrease in its private savings. Use the model of an open economy (loanable funds model) to determine: a) (5 pts) the effects on national savings, b) (5 pts) net foreign investment and net export, c) (5 pts) nominal and real exchange rates (Gourdes/US$), and

Answer 1