Question

What is the difference between small and large open economy?

Answer 1

Answer:

C.A small open economy is able to influence the world interest rate through its saving and investment decisions. D.In a small open economy, equilibrium occurs when saving equals investment; however, in a large open economy equilibrium occurs when desired saving minus desired investment equals net exports.

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Answer 2

Answer:

In a small open economy: Decrease in national savings = decrease in NX (of an equal amount), with investment constant at the level fixed by the world interest rate. A large open economy is the Intermediate Case: Both I and NX decrease, but fall in both I and NX < fall in national saving.

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