Suppose that firms decide to increase their investment in physical capital. Use the model of the...

Suppose that firms decide to increase their investment in physical capital. Use the model of the market for loanable funds in an open economy to answer the following questions. Be sure to use the appropriate graphs to illustrate the answer.

a) What happens to the quantities of national savings, private savings, and public savings?

b) What happens to the real interest rate, the quantity of investment, and the quantity of net capital outflows?

c) What happens to the real exchange rate and quantity of net exports?

Expert Solution

Rahul Sunny answered 2 years ago

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Suppose that firms decide to increase their investment in physical capital. Use the model of the...

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