2.1 Assumptions re:capital flows a. domestic foreign bonds are perfect substitutes (same risk,maturity,etc.) b.perfect capital mobility: no restrictions on international trade in assets c. economy is small: cannot affect the world interest rate,denoted()r* a b implyr=r* c implies r*is exogenous CHAPTER 8 The Open Economy slide 12 CHAPTER 8 The Open Economy slide 12 Assumptions re: capital flows a. domestic & foreign bonds are perfect substitutes (same risk, maturity, etc.) b. perfect capital mobility: no restrictions on international trade in assets c. economy is small: cannot affect the world interest rate, denoted(表示) r* a & b imply r = r* c implies r* is exogenous 2.1