Use the model from chapter 5 of the textbook to predict how each of the following shocks would affect national saving (S), investment (I), the trade balance (NX), and the real exchange rate (e) in a small, open economy with perfect capital mobility, all else equal. For each shock, be sure to clearly state a prediction for all four variables, illustrate your predictions with the relevant diagrams, and explain your predictions intuitively in words.

a. Technological progress increases domestic total factor productivity.

b. The world’s supply of loan able funds decreases.

c. Rising domestic real estate prices increase aggregate domestic household wealth