We assume that the world consists of two large open economies, USA

and China.

USA Initial Conditions

C^d = 300 + 0.4(Y-T) - 200r^w

I^d = 200 - 200r^w

Y = 1000

T = 200

G =275

China Initial Conditions

C^d_F= 450 + .4(Y_F - T_F) - 300r^w

I^d_F= 250 - 300r^w

Y_F = 1500

T_F = 300

G_F = 300

a) What is the equilibrium interest rate that clears the international goods market?

Show all work.

r^w =

b) Now calculate the levels of desired savings, investment, and net exports for each

country at this equilibrium world real interest rate (5 points). Round to the nearest

two decimal places if needed.

US:

China:

S^d_US =

S^d_CH=

I^d_US=

I^d_CH=

NX_US=

NX_CH=