s consolidated Show more Assume two countries in the world: China and the United States. 1. What is the worlds consolidated output (income) equal to? 2. Without trade assume Y=C+I for both China and the US. What does this mean? 3. If China decides to stimulate growth through a policy of running a large export trade surplus does Chinas national savings increase? Show the relationship between Chinas national savings domestic investment and net capital outflow (NCO). 4. Turning to the US why does the US have to run a trade deficit (NX<0) and a net capital account deficit (NCO<0)? 5. Using Mankiws Open Market Model show what happens as a result of a decrease in the US net capital outflow on the US real exchange rate (E) and the US real interest rate. 6. Assume that domestic US savings equals domestic US investment why would you think that in this case the savings from China is destabilizing? 7. For the US to run a trade deficit Y
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