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Permanent increase in the international interest rate

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Reference no: EM133116350

For a small open economy starting with a current account equal to zero, state the effect on saving, investment and current account of the following changes (illustrate using the Metzler Diagram and other relevant graphs).

a) An increase in investment during the first period only (assume depreciation is 100%).

b) Permanent increase in the international interest rate.

Reference no: EM133116350

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