Use two graphs to analyze the effects of the following shocks on the equilibrium quantity of savings, investment, the interest rate, and the current account in a world with two large countries. Assume that both countries begin with a balanced current account. Label everything in your graphs. Explain why any curve shifts.
a) The domestic country experiences a financial crisis which creates a large fall in wealth.
b) The foreign country introduces a policy of taxes and subsidies designed to stimulate investment.