Suppose there are two large economies in the world, the United States (u) and Europe (e). First assume that both countries are closed economies.
Suppose there are two large economies in the world, the United States (u) and Europe (e). First assume that both countries are closed economies. Their respective desired national savings and desired investments curves are given by:
Sud = 85 + 25ru and Iud = 91 – 15ru
Sed = 72 + 40re and Ied = 76 – 20re
Where r denotes the real interest rate.
Find the equilibrium real interest rates, desired savings and investment for each of the closed economies.
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