Consider a large one economy where: Cd= 1+.9(Y-T)-150r Id=80-200r y=250 T=40 G=50 NFP=0 If the saving...

Consider a large one economy where:

Cd= 1+.9(Y-T)-150r

Id=80-200r

y=250 T=40 G=50 NFP=0

If the saving schedule for the rest of the world is Sd=15+516.6r and its investment schedule is Id=120-300r, then:

a) What is the equilibrium world interest rate?

b) What is the current account for the large open economy?

c) What is the financial account for the large open economy?

Solutions

Expert Solution

At equilibrium,

Y = C+I+G

250 = 1+0.9(250-40)-150r + 80-200r + 50

250 = 320-350r

350r = 70

R* = 0.2 or 20%

Current account = S-I

Current account = (15+516.6r) – (120-300r)

Current account = -105+216.6r

Current account = -105+216.6(0.2)

Current account = -$61.68

Current account + Financial account = 0

-61.68 + financial account = 0

Financial account = $61.68

Rahul Sunny answered 1 year ago

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