Over the last few years world saving rates have increased, in part because China

Question

Over the last few years world saving rates have increased, in part because China has a very high
saving rate and China is represents an increasing share of the world economy.
Suppose that China was a closed economy. Describe the long run effect of increased saving on
Chinese (a) output, (b) consumption, (c) investment, (d) real interest rate.

Now Suppose instead we consider the world to be divided into a home country (Canada) and the rest of
the world (China). Treating the home country as a small open economy, what is the long-run effect
of increased rest of the world saving on Canadian (a) output, (b) consumption, (c) investment, (d)
real interest rate? (Include the appropriate diagrams in each case)

Explanation / Answer

So here i start giving a defination.An economy in which no activity is conducted with outside economies. A closed economy is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy's borders.
A direct result of not relying on other countries and regions is that the closed economic region is independent. An open economic region, or one that depends on importing and exporting, is susceptible to external demands that could weaken the region

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