Clarification of Elasticity
Suppose that Americans decide to increase their saving.
a.If the elasticity of U.S. net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on U.S. domestic investment?
b.If the elasticity of U.S. exports with respect to the real exchange rate is very low, will this increase in private saving have a large or small effect on the U.S. real exchange rate?