a)
To evaluate the equilibrium interest rate in the international capital market and the equilibrium values of national saving, consumption, investment, and current account balance in each country.
a)
Explanation of Solution
Foreign:
At equilibrium,
For stands for foreign country.
b)
To evaluate the equilibrium interest rate in the international capital market and the equilibrium values of national saving, consumption, investment, and current account balance in each country assuming that in the home country government purchases by 50 to 325 and taxes also increase by 50 to keep the deficit from increasing.
b)
Explanation of Solution
For stands for foreign country.
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