OPEN ECONOMY II: THE CURRENT ACCOUNT IN AN INTERTEMPORAL FRAMEWORK
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ONLINE APPLICATION
In a closed economy, the current account is zero and national
saving equals domestic investment. Accordingly any increase
in savings in a closed economy will be accompanied by an
equal rise in domestic investment. In contrast in an open
economy with capital mobility, saving and investment can
diverge due to the opportunities available to an economy to
gain from intertemporal trade. With perfect capital mobility
there should be no relation between the domestic saving and
investment as saving in each country responds to the world-
wide opportunities ...
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