Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given byI= 400 - 20r, whereris the real interest rate measured in percentage, and the world real interest rate is 10 percent.

a. Compute the investment, trade balance, and net capital outflow. (Note: be careful in doing the calculation especially regarding the real interest rate measurement.Recall that real interest rate hasalready measured in percentage).

b. Does the investment change ifGrises by 100? If it changes, does it increase or decrease, and by how much?

c. Does net capital outflow change ifGrises by 100? If it changes, does it increase or decrease, and by how much?

d. Will the real exchange rate rise, fall, or remain constant as a result of theincrease inG?Please explain.