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Haiti is an open economy located in the West Indies, on the island of Hispaniola. In...

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) the effects on national savings, b) net foreign investment and net export, c) nominal and real exchange rates (Gourdes/US$), and d) the nominal and real interest rates in Haiti.

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