Suppose that Northlandia and Southlandia are the only two trading countries in the

Chapter 0, Problem 5

(choose chapter or problem)

Suppose that Northlandia and Southlandia are the only two trading countries in the world, that each nation runs a balance of payments on both current and financial accounts equal to zero, and that each nation sees the others assets as identical to its own. Using the accompanying diagrams, explain how the demand and supply of loanable funds, the interest rate, and the balance of payments on the current and financial accounts will change in each country if internationalcapital flows are possible.