(An NII-NIIP Paradox) A country exhibits the paradoxical situation of having negative net investment income (NII) of 100 and a positive net international investment position (NIIP) of 1000. Economists' opinions about this are divided. Group A thinks that the explanation lies in the fact that, because of the bad reputation of the country in world financial markets, foreign investors charge a higher interest rate when they lend to this country, relative to the interest rate the country receives on its investments abroad. Group B believes that domestic investors inflate their gross international asset positions to look like big players in the world market. (a) Calculate the interest-rate premium that would explain the paradox under group A's hypothesis, assuming that the interest rate on assets invested abroad is 5 percent and that the country's gross international asset position is 4000 . (b) Calculate the amount by which domestic investors inflate their gross foreign asset positions under group B's hypothesis assuming that the interest rate on assets and liabilities is 5 percent. (An NII-NIIP Paradox) A country exhibits the paradoxical situation of having negative net investment income (NII) of 100 and a positive net international investment position (NIIP) of 1000. Economists' opinions about this are divided. Group A thinks that the explanation lies in the fact that, because of the bad reputation of the country in world financial markets, foreign investors charge a higher interest rate when they lend to this country, relative to the interest rate the country receives on its investments abroad. Group B believes that domestic investors inflate their gross international asset positions to look like big players in the world market. (a) Calculate the interest-rate premium that would explain the paradox under group A's hypothesis, assuming that the interest rate on assets invested abroad is 5 percent and that the country's gross international asset position is 4000 . (b) Calculate the amount by which domestic investors inflate their gross foreign asset positions under group B's hypothesis assuming that the interest rate on assets and liabilities is 5 percent