In: Economics
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?
a)
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%
b)
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
c)
Current account + Financial account = 0
-61.68 + financial account = 0
Financial account = $61.68