Recently, there has been a spate of instability throughout the world. The immigration crisis in the EU, and the political instability in parts of the Middle East.
a. Explain intuitively why the NCO curve slopes downward. Begin your explanation, by considering a decrease in the real interest rate.
b. Using the three panel diagram for the US, explained the effects of the political instability on the US economy. Determine what happens to the following: the real interest rate, national savings, investment, NCO, E, exports, imports, and net exports. [Note: If you cannot unambiguously determine what happens to any of the variables listed, clearly state that the effect is ambiguous, and discuss under what conditions the variable increases or decreases.]