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2. a. Consider a small open economy Newfunland with desired national saving of St=20 + 200 and desired investment of I = 30-200 rw, where is the world interest rate. What is the value of the domestic interest rater at which Newfunland's current account, CA, is in balance? Find also the actual values of national saving, S, and investment, I respectively at this interest rate. Calculate New funland's national saving, investment, and the current account balance in equilibrium when the major central banks like the US Fed and European Central Bank carry -1- b. out quantitative easing to bring their interest rates to the zero lower bound (ZLB). Explain concisely the underlying economics, in particular the impact on the current account of Newfunland. c. Calculate Newfunland's national saving, investment, and the current account balance in equilibrium if the real world interest rate is 5%. d. . e. Repeat c above if Newfunland changes its fiscal policy stance by reducing its expenditure such that desired national saving changes by 10 at all levels of interest rate. Repeat c above but now Newfunland offers higher investment tax credits to firms such that desired investment changes by 20 at all levels of interest rate. Imagine you are the economic advisor for the Newfunland Government. Which policy, i.e. dor e above, would you recommend if Newfunland's central bank is currently facing a shortage of foreign exchange reserves. Explain concisely your reasoning. f. 2. a. Consider a small open economy Newfunland with desired national saving of St=20 + 200 and desired investment of I = 30-200 rw, where is the world interest rate. What is the value of the domestic interest rater at which Newfunland's current account, CA, is in balance? Find also the actual values of national saving, S, and investment, I respectively at this interest rate. Calculate New funland's national saving, investment, and the current account balance in equilibrium when the major central banks like the US Fed and European Central Bank carry -1- b. out quantitative easing to bring their interest rates to the zero lower bound (ZLB). Explain concisely the underlying economics, in particular the impact on the current account of Newfunland. c. Calculate Newfunland's national saving, investment, and the current account balance in equilibrium if the real world interest rate is 5%. d. . e. Repeat c above if Newfunland changes its fiscal policy stance by reducing its expenditure such that desired national saving changes by 10 at all levels of interest rate. Repeat c above but now Newfunland offers higher investment tax credits to firms such that desired investment changes by 20 at all levels of interest rate. Imagine you are the economic advisor for the Newfunland Government. Which policy, i.e. dor e above, would you recommend if Newfunland's central bank is currently facing a shortage of foreign exchange reserves. Explain concisely your reasoning. f

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