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Unformatted text preview: which would push the country in the direction of a trade deficit. If the world interest rate sits at r(W) and the changes in Net Exports push savings to S(2), than Libya could actually soon face a trade deficit. Evaluation This is a rather good use of the model in that the unique situation that this country finds itself in can be accurately predicted by the open economy model. With Libyas Human Development Index currently higher than Mexicos, their potential for growth under a politically stable government is immense. The one piece that I find troubling is the fact that output (Y) is fixed. In the real world the experts predict that Libya will greatly increase its output with its new relatively liberal government. However the model does accurately predict how the exchange rate and real interest rate will be affected by the increase in Net Exports....
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This note was uploaded on 01/29/2012 for the course ECONOMICS 300 taught by Professor Instructor during the Fall '11 term at Boise State.
- Fall '11