In a saving-investment diagram for a small open economy
A)the saving curve is vertical at some fixed level of output.
B)the saving curve is horizontal at some fixed interest rate.
C)the real interest rate is fixed at the world real interest rate.
D)equilibrium requires that Sd = Id.

Question

Quizplus · Accepted Answer

In a small open economy, the real interest rate is determined by the world real interest rate, as the economy is a price taker in the global financial markets.

In a Saving-Investment Diagram for a Small Open Economy