World investment demand as a function of world interest rate

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Reference no: EM13838028

Oceania is a small open economy. Suppose that a large number of foreign countries begin to subsidize investment by instituting an investment tax credit (while adjusting other taxes to hold their tax revenue constant), but Oceania does not institute such an investment subsidy.

a. What happens to world investment demand as a function of the world interest rate?

b. What happens to the world interest rate?

c. What happens to investment in Oceania?

d. What happens to Oceania’s trade balance?

e. What happens to Oceania’s real exchange rate?

Reference no: EM13838028

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