3. The trade balance and capital flows for a small economy Suppose that the following graph shows the loanable funds market for the small closed economy of the Bahamas. Its investment function is represented by the blue line, and its saving is shown by the orange line. Use the black point (X symbol) to mark the Bahamas' loanable funds market equilibrium in the absence of international capital flows. REAL INTEREST RATE (Percent) 10 9 8 7 6 5 4 3 2 1 0 10 20 30 40 S I[r] Closed Economy Eq --X Trade Surplus Trade Deficit 50 60 70 80 90 100 I, S (Billions of dollars) Help Clear All The equilibrium interest rate that prevails when the Bahamas is a closed economy is Aa Aa Next, suppose that the Bahamas opens to international flows of trade and capital and that its residents have full access to world capital markets. Assume that the world real interest rate is 3%. On the previous graph, use either the green points (triangle symbol) or the red points (cross symbol) to show the trade balance for the Bahamas when it is open to international flows of trade and capital. Line segments will connect the points automatically. When the Bahamas acts as a small open economy, its trade balance is in world real interest rate, its exceeds its This is because, at the Which of the following are among the key assumptions of the small-open-economy model? Check all that apply. The economy's borrowing and lending decisions influence the world real interest rate. The economy's output is held fixed by the levels of factors of production and the production function. Consumption is positively related to disposable income. ONA 3 16 2004-2016 Aplia All rights reserved