a)
To ascertain the national saving in the home country and in the foreign country as a functions of the world real interest rate.
a)
Explanation of Solution
H refers to home country,
Introduction: National savings are important for countries' economic development because the savings generate investment. Saving is an important indicator of economic development where it is used in every developing country to achieve
b)
To ascertain the equilibrium values of the world real interest rate
b)
Explanation of Solution
In equilibrium, one country’s CA surplus should equal to the other country’s CA deficit, thus we have:
So,
Introduction: The real rate of interest is the interest rate that a creditor, saver or lender earns after adjusting for inflation. It is also defined by the Fisher equation, that states the real interest rate is thenominal rate of interest minus the rate of inflation
c)
To ascertain the equilibrium values of consumption, national saving, investment, the current account balance, absorption in each country.
c)
Explanation of Solution
Introduction: The growth of an economy is affected by national savings. Consumption,
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