Q#1:

Consider a large open economy in equilibrium between home saving and home investment. What are the effects on the world real interest rate, domestic national saving, domestic investment, the domestic current account balance, foreign national saving, foreign investment, and the foreign current account balance in each of the following scenarios? Justify your answer with economic intuition and/or graphical analysis; What not to anwer with: stating what happens to each variable is not sufficient to earn credit for this question. See examples below. (1) current income rises in a large foreign open economy. (2) the future marginal product of capital rises in the domestic country. (3) a decrease in the tax on returns on investment in a large foreign open economy.