Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. In the home country the following relationships hold:{ refer to image }a) What is the world equilibrium interest rate? What are the equilibrium values of consumption, national saving, investment, and the current account balance in each country? desired consumption, Cddesired investment, Id=400+ 0.5(YT) - 100300 - 100output, Y = 2000taxes, T = 250government purchases, G = 300In the foreign country the following relationships hold:desired consumption, Cor = 200+ 0.5(YFor TFor) - 150desired investment, Ior =400 - 150¹output, YFor1000taxes, TFor250government purchases, GFor200

Home CountryCd = 400 + 0.5(Y-T) - 100rwId = 300 - 100rwY = 2000T = 250G = 300Foreign CountryCd = 200…

Answered: Consider a world with only two…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Consider a world with only two countries (i.e., two large open economies), the home country and the foreign country. In the home country the following relationships hold:

{ refer to image }

a) What is the world equilibrium interest rate? What are the equilibrium values of consumption, national saving, investment, and the current account balance in each country?

desired consumption, Cd
desired investment, Id
=
400+ 0.5(YT) - 100
300 - 100
output, Y = 2000
taxes, T = 250
government purchases, G = 300
In the foreign country the following relationships hold:
desired consumption, Cor = 200+ 0.5(YFor TFor) - 150
desired investment, Ior =
400 - 150¹
output, YFor
1000
taxes, TFor
250
government purchases, GFor
200

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