Assume that in a small open economy where full employment al

Assume that in a small open economy where full employment always prevails, national

saving is 300.

a. If the economy is open and the world interest rate is 10 percent, what will

investment be?

b. What will the current account surplus or deficit be? What will net capital outflow

be?

Solution

a)
Interest should be 200
b)

The trade surplus will be 100. Net foreign investment (or net capital out∞ow) will be 100