Consider an economy whose desired savings (Sd) and desired investment (rd) are given by the following expressions: $ 11 325 + 500r 410 - 500r where r denotes the real interest rate. (a) Find the equilibrium in the Goods market for this economy, and represent it in a graph. From now on, suppose there are only two large Countries in the world, say Canada (Ca) and the United States (US) (b) Assume, to start with, that both Countries are closed economies. Their desired consumption (C) and desired investment (14) are given by: CO 320 + cca (Yce - Tca) - 200 150 - 200r Te cus 480+ cus (Yus - Tus) - 300 260 - 300 Us Moreover, output (Y), taxes (T), public expenditure (G), and the marginal propensity to consume (e) are as follows: "The material contained in this document is copyrighted . property of the University of Victoria, meant exclusively for the use of students enrolled in ECON 204, and it cannot be shared without the authors' explicit consent. I Yca ca Gca 1000; Yus = 1500 200;Tus = 300 = 275; GUS = 300 0.4;cus = 0.4 Find the equilibrium real interest rates, savings and investment for the two closed economies. What are the equilibrium values for consumption? (c) Now assume that Canada and the US can freely trade with each other, and have access to the international market for borrowing and lending. Find the world real interest rate, and the current account balances for each Country. Compare: i) the world real interest rate to the real interest rates in the previous part, ii) consumption before and after the change. (a) What happens if you consider the world desired savings and investment and compare them to the ones in part a)? Comment on your findings: Consider an economy whose desired savings (Sd) and desired investment (rd) are given by the following expressions: $ 11 325 + 500r 410 - 500r where r denotes the real interest rate. (a) Find the equilibrium in the Goods market for this economy, and represent it in a graph. From now on, suppose there are only two large Countries in the world, say Canada (Ca) and the United States (US) (b) Assume, to start with, that both Countries are closed economies. Their desired consumption (C) and desired investment (14) are given by: CO 320 + cca (Yce - Tca) - 200 150 - 200r Te cus 480+ cus (Yus - Tus) - 300 260 - 300 Us Moreover, output (Y), taxes (T), public expenditure (G), and the marginal propensity to consume (e) are as follows: "The material contained in this document is copyrighted . property of the University of Victoria, meant exclusively for the use of students enrolled in ECON 204, and it cannot be shared without the authors' explicit consent. I Yca ca Gca 1000; Yus = 1500 200;Tus = 300 = 275; GUS = 300 0.4;cus = 0.4 Find the equilibrium real interest rates, savings and investment for the two closed economies. What are the equilibrium values for consumption? (c) Now assume that Canada and the US can freely trade with each other, and have access to the international market for borrowing and lending. Find the world real interest rate, and the current account balances for each Country. Compare: i) the world real interest rate to the real interest rates in the previous part, ii) consumption before and after the change. (a) What happens if you consider the world desired savings and investment and compare them to the ones in part a)? Comment on your findings
