Reference no: EM132157352

Suppose that the US and the European Union are the only 2 countries in the world, and their Current Accounts determine the world real interest rate.

You are told

1. The interest rate when the economy is closed is 4% in the US
2. The interest rate when the economy is closed is 5% in the EU

If the two economies opened up to trade, and you were told that the world real interest rate is at 6%.

A. The US would be running a current account deficit, the EU would be running a current account surplus

B. You can't say if this is an equilibrium: not enough information

C. You would think that this can't be an equilibrium, since both economies would be running a current account deficit

D. You would think that this can't be an equilibrium, since both economies would be running a current account surplus