5. Consider a world with only two countries, which are designated the home country (H) and the foreign country (F). Output equals its full-employment level in each country. You are given the following information about each country:

a. Write national saving in the home country and in the foreign country as functions of the world real interest rate rw.

b. What is the equilibrium value of the world real interest rate?

c. What are the equilibrium values of consumption, national saving, investment, the current account balance, and absorption in each country?

Transcribed Image Text:

Home Country Consumption: CH Investment: IH == 100+ 0.5Y - 500, 300 500,-