Question
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
We assume that the world consists of two large open economies, USA
and China.
USA Initial Conditions
Cd = 300 + 0.4(Y-T) - 200rw
Id = 200 - 200rw
Y = 1000
T = 200
G =275
China Initial Conditions
CdF= 450 + .4(YF - TF) - 300rw
IdF= 250 - 300rw
YF = 1500
TF = 300
GF = 300
a) What is the equilibrium interest rate that clears the international goods market?
Show all work.
rw =
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:
SdUS =
SdCH=
IdUS=
IdCH=
NXUS=
NXCH=
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