Model of the Large Open Economy a. Major improvements in computer information technology in the 1990s fueled an increase in investment demand in the United States (a large open economy). Graphically illustrate the effect of an increase of U. S. investment using the Large Open Economy Model developed in the appendix of Ch. 6 (Hint: In your model you will need to draw three diagrams). Clearly label the axes and curves in each of your graphs in the model. Clearly indicate the direction of any shifts in the curves. In your model, label the initial equilibrium points as Point A and label the new equilibrium points as Point B.
b. Using your model drawn in Part (a), indicate what effect the increase in investment will have on the following economic variables in the United States:
(i) real interest rate,
(ii) net capital outflow,
(iii) real exchange rate,
(iv) net exports.

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How does knowing about supply and demand

Afinancial institution, the thriftem bank, is in the process of formulating its loan policy for the next quarter. a total of $12 million is allocated for that purpose. being a full-service facility, the bank is obligated to grant loans to different clientele. the following table provides the types of loans, the interest rate charged by the bank, and the possibility of bad debt as estimated from past experience.type of loaninterest rateprobability of bad debtpersonal.140.10car.130.07home.120.03farm.125.05commercial.100.02 bad debts are assumed unrecoverable and hence produce no interest revenue either. competition with other financial institutions in the area requires that the bank allocate at least 40% of the total funds to farm and commercial loans. to assist the housing industry in the region, home loans must equal at least 50% of the personal, car, and home loans. the bank also has a stated policy specifying that the overall ratio for bad debts on all loans may not exceed .04. formulate this problem as a linear program. define your variables clearly and write all the constraints explaining the significance of each.