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Answer to Question #67798 in Macroeconomics for Joe

Question #67798
a. In a world with two large economies, what determines the world real interest rate?

b. what relationship between the current accounts of the two countries is satisfied when the world real interest rate is at its equilibrium valve?
Expert's answer
a. In a world with two large open economies, the world real interest rate is determined such that desired international lending by one country equals desired international borrowing by the other country.
b. When the world real interest rate is at its equilibrium value, the current accounts of the two countries sum to zero.

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