3. Assume that in a small economy where full employment always prevails, national saving is 300.

A.If domestic investment is given by I = 360-20r what is the equilibrium real interest rate if the economy were closed?

B. If the economy is now small and open and the world interest rate (r*) is 5 percent, how much would investment be?

C. Following from B) calculate the current account (i.e., trade) surplus or deficit.Be sure to state whether the country is in deficit or surplus here.How much are net capital outflows (think here: is the country a net lender or net borrower in world capital/loanable funds market)?

D.If the economy is open, and if government spending rises by 100, how would this affect domestic investment (I)?Does the trade balance change?If yes, calculate the new trade balance.

E.Will the real exchange rate rise, fall or remain constant as a result of the change in G in D)?Use the "S-I and NX" graph here to show how the real exchange rate would be affected