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.

Q#2: Answer to the following questions based on your knowledge and understanding of the Solow Growth model. (a) What are the equilibrium conditions of the Solow Growth model? How can it be used for policy analysis? (b) Define the steady-state equilibrium conditions of the Solow Growth model. In addition, supposed global warming speeds up the depreciation rate of capital. What will happen to the steady-state conditions of this model (will they rise, fall, or state unchanged)? The justification of your answer should include a graphical analysis of the Solow growth model and the impact of this event on this economy. (c) What policy recommendation would you give to the US federal government given the current economic situation in the US? Justify your answer. Make sure to include a graphical analysis of the Solow Growth model indicating the outcome of your policy recommendation in your answer.

Q#3: Which model do you think better suits the US economy in reality? solow growth or endogenous growth theory.