1.) In a small open economy,

NS? = $20 billion + $160 billion * r_w

I^{d =} $15 billion - $200 billion *r_w

Y=$60 billion

G= $10 billion

r_w = .05

a) Find the country's national saving, investment spending, current account balance desired consumption, and absorption.

b) Owing to a change, the country's desired saving falls by $10 billion at each level of the world interest rate. Repeat part (a) with this information.

c) Start with the information as given in part (a), now let r_w = 0.4, re-compute the values for the country's national saving, investment spending, current account balance, desired consumption, and absorption.