- The country of Albanystan (country A) forms a small open economy on its own. It has savings SA=30+300r and investment IA=80-200r.
- If r=0.2, is country A a borrower or a lender?
- Below what interest rate would country A be a borrower?
The country of Bostonland (country B) decides to join and together they form a large open economy with SB=40+100r and IB=5-500r
- What is the equilibrium interest rate?
- What is CAA, CAB?
- Which country borrows and which country lend?
The country of Cincinnatisland (country C) joins country B to form a large open economy, while country A forms a small open economy on its own with SC=50+200r and IC=25-400r
- What is the new equilibrium interest rate?
- Is country A a borrower or a lender?