# Question

Consider an economy described by the following equations:

Y = C + I + G + NX

Y = 5,000

G = 1,000

T = 1,000

C = 250 + 0.75 (Y – T)

I = 1,000 – 50 r

NX = 500 - 500ε

r = r* = 5

a. In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate.

b. Suppose now that g rises to 1,250. Solve for national saving, investment, the trade balance and the equilibrium exchange rate. Explain what you find.

c. Now suppose that the world interest rate rises from 5% to 10%. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Y = C + I + G + NX

Y = 5,000

G = 1,000

T = 1,000

C = 250 + 0.75 (Y – T)

I = 1,000 – 50 r

NX = 500 - 500ε

r = r* = 5

a. In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate.

b. Suppose now that g rises to 1,250. Solve for national saving, investment, the trade balance and the equilibrium exchange rate. Explain what you find.

c. Now suppose that the world interest rate rises from 5% to 10%. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

## Answer to relevant Questions

Assume that the price level is fixed in the short run, both at home and abroad. This means that the nominal exchange rate e equals the real exchange rate. Use the Mundell-Flemming model to predict what would happen to ...Comparing Cost of Checking Cost: What would be the net annual cost of the following checking accounts?a) Monthly fee, $3.75; processing fee, $0.25 cent per check; check written, an average of 22 a monthb) Interest earning of ...Two reading selections from Voltaire’s Candide. The story begins by acknowledging the foolishness of the superstitious traditions held by the people in the city of Lisbon but ends by confirming Voltaire’s belief that ...Suppose that $1 billion of pass-throughs is used to create a CMO structure with a PAC bond with a par value of $700 million and a support bond with a par value of $300 million. Answer the question below: Which of the ...You are operating an old machine that is expected to produce a cash inflow of $5,000 in each of the next 3 years before it fails. You can replace it now with a new machine that costs $20,000 but is much more efficient and ...Post your question

0