2. To illustrate some basic relationships in 21 OECD countries and 12 countries that have recently joined the EU, the figure below displays cross-country plots of the average (over the period 1995-2002) current account against the investment ratio. 12% 100% 4% 2% 596 10% -10% 56 -0% -8% investment ratio a) Can the observed relationship between the investment ratio on the one hand and the current account on th classical model of the small open economy? In your answer, please include graphs of the classical model b) What are the likely consequences of an increase in investment on the real and nominal exchange rate? Please explain other hand be explained on the basis of the current account 2. To illustrate some basic relationships in 21 OECD countries and 12 countries that have recently joined the EU, the figure below displays cross-country plots of the average (over the period 1995-2002) current account against the investment ratio. 12% 100% 4% 2% 596 10% -10% 56 -0% -8% investment ratio a) Can the observed relationship between the investment ratio on the one hand and the current account on th classical model of the small open economy? In your answer, please include graphs of the classical model b) What are the likely consequences of an increase in investment on the real and nominal exchange rate? Please explain other hand be explained on the basis of the current account