Q 3: Activity 3 - Open Economy Article: Application of the open-economy macro model to world events.

Note:Find appropriate topicsinterest rate changes, changes in net capital outflow, changes in net exports.

Steps to this activity:

1. Find an article in a recent newspaper or magazine illustrating a change that will affect net capital outflow or net exports. (5 marks)

2. Explain how and why net capital outflow or net exports would shift. (5 marks)

3. Use the market open-economy model (the market for loanable funds and the market for foreign-currency exchange) to analyze this change. (5 marks)

4. Graph the world real interest rate showing net capital outflow, and real exchange rate before the change. Then show how the change will affect these variables. (10 marks)

5. Turn in a copy of the article along with your explanation. (5 marks)