Model of the Large Open Economy a. Major improvements in computer information technology in the 1990s fueled an increase in investment demand in the United States (a large open economy). Graphically illustrate the effect of an increase of U. S. investment using the Large Open Economy Model developed in the appendix of Ch. 6 (Hint: In your model you will need to draw three diagrams). Clearly label the axes and curves in each of your graphs in the model. Clearly indicate the direction of any shifts in the curves. In your model, label the initial equilibrium points as Point A and label the new equilibrium points as Point B.
b. Using your model drawn in Part (a), indicate what effect the increase in investment will have on the following economic variables in the United States:
(i) real interest rate,
(ii) net capital outflow,
(iii) real exchange rate,
(iv) net exports.