Question

1. Suppose rising oil prices result in an increase in investment in Canada, as firms intensify efforts at developing the tar sands in Alberta. Assume that saving decisions are unchanged. Use the open economy model to explain how the increase in investment affects net foreign investment, net exports, and the real exchange rate.

Answer 1

An open economy is an economy in which there are economic activities between the domestic community and outside. People and even businesses can trade in goods and services with other people and businesses in the international community, and funds can flow as investments across the border. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services.

so that rising of oil prices resut in increase in investment in canada,as firms intensify efforts at developing the tar sands in alberta.by increase in investment leads to the foreign investments.then it will improve net exports.