1. International Trade and Capital Flows. Consider a small country with perfect capital mobility. The country's investment depends on the real interest rate such that /= {(r). The country has fixed saving. a. Plot the country's investment and savings curves on a graph. Label the x- and y- axes with the appropriate variables. b. On your graph in part a.), show an example of the world interest rate where: A) Net exports are positive (trade surplus) B) Net exports equal zero (balanced trade) C) Net exports are negative (trade deficit) In each of the three cases, compare the level of savings to the level of investment. C. Suppose the country believes its debt is too high and cuts government spending (contractionary fiscal policy). Would this help or hurt the government deficit? What is the effect on national saving? d. How does the change in savings affect net capital outflows? How does the change in net capital outflows affect net exports? e. Show the effect of the cut to spending in a new graph below. 1. International Trade and Capital Flows. Consider a small country with perfect capital mobility. The country's investment depends on the real interest rate such that /= {(r). The country has fixed saving. a. Plot the country's investment and savings curves on a graph. Label the x- and y- axes with the appropriate variables. b. On your graph in part a.), show an example of the world interest rate where: A) Net exports are positive (trade surplus) B) Net exports equal zero (balanced trade) C) Net exports are negative (trade deficit) In each of the three cases, compare the level of savings to the level of investment. C. Suppose the country believes its debt is too high and cuts government spending (contractionary fiscal policy). Would this help or hurt the government deficit? What is the effect on national saving? d. How does the change in savings affect net capital outflows? How does the change in net capital outflows affect net exports? e. Show the effect of the cut to spending in a new graph below