Question

If a small open economy bans the import of
Japanese video game systems, what happens to
saving, investment, the trade balance, the interest
rate, and the exchange rate?

Answer 1

If a small open economy bans the import of a product, the government will has a cut in defense spending, which will lead to an increase in national saving.

The increase in national saving would cause the trade balance to rise which will eventually lead to the decrease of Exchange Rate

The investment is affected by the world's interest rate, since nothing happen to the world's interest rate, the investment will not be affected