In a classical open economy model, what happens if domestic saving increases while investment remains constant?A.The trade balance will turn into a trade surplusB.Domestic interest rates will riseC.The real exchange rate will riseD.The trade balance will turn into a trade deficit

In the classical model of a closed economy, which of the following best describes the effect of an increase in the real interest rate on national savings and investment, assuming the economy is initially in equilibrium?

Suppose the government of Lilliput, a closed economy, increases its spending while investment demand rises simultaneously. Briefly discuss the long-run impact on private saving, public saving, national saving, the domestic real interest rate, and investment according to the classical model of a closed economy (5 marks).Note: Explain your answers for national saving, the domestic real interest rate and investment by mentioning the impacted curve(s) and direction of curve shifts in the market for loanable funds.

24.In the short-run open economy model, an increase in foreign income will result in:  A. A decrease in domestic output  B. An increase in domestic output  C. No change in domestic output  D. A decrease in domestic interest rates

Consider a small open economy that takes the world real interest rate as given. Suppose that initially the world real interest rate is less than the country’s autarky real interest rate. Now suppose there is a change in tax policy that leads to an increase in domestic saving supply. Which of the following is TRUE?Group of answer choicesThe economy may flip from importing capital to exporting capitalThere is an increase in the quantity of domestic investmentThere is an increase in the real interest rate paid to domestic saversNone of the other options

Consider the classical model of a small open economy with perfect capital mobility. Suppose domestic political stability improves and optimism about future conditions increases, causing firms to raise their investment sharply.Based on the above information, answer the following questions.What impact will the increase in investment demand have on the real interest rate of the small open economy? Briefly explain your answer. (2 marks)What impact will the increase in investment demand have on net capital outflow in the small open economy? Briefly explain your answer. (2 marks)Explain the long-run impact of the increase in investment demand on the real exchange rate and net exports. Briefly explain your answers by referring to the affected curves in the market for foreign exchange. (2 marks)