1.)   In a small open economy,

NSᵈ = $20 billion + $160 billion * rw

Id = $15 billion – $200 billion *rw

Y=$60 billion

G= $10 billion

rw = .05

a)     Find the country’s national saving, investment spending, current account balance desired consumption, and absorption.

b)     Owing to a change, the country’s desired saving falls by $10 billion at each level of the world interest rate. Repeat part (a) with this information.

c)     Start with the information as given in part (a), now let rw = 0.4, re-compute the values for the country’s national saving, investment spending, current account balance, desired consumption, and absorption.