3. In a small open economy,

( )

( )

=

+

=

−

=

=

=

S r

I r

Y G

r desired national saving, $10billion

$100billion ;

desired investment, $15billion

$100 billion ;

output, $50billion;

governmentpurchases, $10billion;

world real interest rate, 0.03.

d w

d w

w

a. Find the economy’s national saving, investment, current account surplus, net exports, desired con sumption, and absorption.

b. Owing to a technological innovation that increases future productivity, the country’s desired invest ment rises by $2 billion at each level of the world real interest rate. Repeat Part

(a) with this new information.