Suppose that in Tunisia, a small open economy, savings initially exceeds investment. Due to events in the European economy, there is a decline in the world real interest rate. Using a supply and demand diagram, explain what happens in the savings and investment market in Tunisia. Be sure to show in the graph and explain what happens to net exports and net capital outflows. Assume initially that investment exceeds savings in Tunisia

Suppose that in Tunisia, a small open economy, savings initially exceeds investment. Due to events in the European economy, there is a decline in the world real interest rate. Using a supply and demand diagram, explain what happens in the savings and investment market in Tunisia. Be sure to show in the graph and explain what happens to net exports and net capital outflows. Assume initially that investment exceeds savings in Tunisia

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 14QP

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In your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.
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