Problem
Consider a small open economy that is currently running a trade surplus. Answer the following questions using a graphic representation of desired saving and investment in the small open economy:
a) Is the world real interest rate higher or lower than the real interest rate that would prevail if this was a closed economy?
b) What would be the effect of an autonomous decrease in investment on the trade balance?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.