Let the following represent the structure of a SMALL OPEN ECONOMY with PERFECT CAPITAL MOBILITY and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Let the following represent the structure of a SMALL OPEN ECONOMY with PERFECT CAPITAL MOBILITY and FIXED EXCHANGE RATE REGIME: C=C₂+0.75(Y-T), C₂ = 90, T=40+0.2Y, G=45, Ip = 75-5r, NX = 80 -0.1Y - 5e, (M/P)D = 0.2Y-2r, Ms/P = 80. A) Assume that initially foreign and domestic interest rates are equal so that r = rf and let the foreign exchange rate e=4. Find the IS and LM equations (B) Find the equilibrium income, interest rate and net exports. (C) Suppose autonomous planned consumption, Ca, goes down from 90 to 60. (D) Let domestic interest rates and world interest rates briefly diverge: capital investors have not reacted yet, and neither has the government or central bank. Use the new IS curve and the LM curve to calculate the new output and domestic interest rate. (E) The economy is a small open economy, so eventually capital investors, and possibly the government and central bank, will react. What is the new output Y and interest rate r? What factors adjust to get the economy here? (F) (E) From part A) to part D), which curves have shifted? Draw an IS-LM diagram, and label the points for your solutions to above problems for example B), D), and E). Let the following represent the structure of a SMALL OPEN ECONOMY with PERFECT CAPITAL MOBILITY and FIXED EXCHANGE RATE REGIME: C=C₂+0.75(Y-T), C₂ = 90, T=40+0.2Y, G=45, Ip = 75-5r, NX = 80 -0.1Y - 5e, (M/P)D = 0.2Y-2r, Ms/P = 80. A) Assume that initially foreign and domestic interest rates are equal so that r = rf and let the foreign exchange rate e=4. Find the IS and LM equations (B) Find the equilibrium income, interest rate and net exports. (C) Suppose autonomous planned consumption, Ca, goes down from 90 to 60. (D) Let domestic interest rates and world interest rates briefly diverge: capital investors have not reacted yet, and neither has the government or central bank. Use the new IS curve and the LM curve to calculate the new output and domestic interest rate. (E) The economy is a small open economy, so eventually capital investors, and possibly the government and central bank, will react. What is the new output Y and interest rate r? What factors adjust to get the economy here? (F) (E) From part A) to part D), which curves have shifted? Draw an IS-LM diagram, and label the points for your solutions to above problems for example B), D), and E).
Expert Answer:
Answer rating: 100% (QA)
A Assume that initially foreign and domestic interest rates are equal so that r rf and let the foreign exchange rate e4 Find the IS and LM equations Assuming that the initial foreign and domestic inte... View the full answer
Related Book For
Principles of Taxation for Business and Investment Planning 2016 Edition
ISBN: 9781259549250
19th edition
Authors: Sally Jones, Shelley Rhoades Catanach
Posted Date:
Students also viewed these economics questions
-
The Tornado Vacuum Cleaner Company produces and sells three different types of upright vacuum cleaners: (1) The F1, (2) The F3, and (3) The F5. Each vacuum cleaner shares certain basic features such...
-
A tornado severely damaged one of Down Town Digs retail clothing store, destroying all the inventory in the store. Down Town Digs ending store inventory last year was $ 109,500. Its net purchases...
-
What sort of problems do you see with this type of auto purchasing system in this and other markets, like the U.S.?
-
Junes Garden Supplies purchases merchandise on account from Lawn Supplies, Inc. The list price is $1,600, with a trade discount of 25 percent, terms 1/10, n/30. Junes Garden Supplies pays the amount...
-
From Figure 5.6 Figure 5.6 (a) Find the producers risk if the AQL is 0.10; (b) Find the LTPD corresponding to a consumers risk of 0.05. L(P) 10IProducer's risk 97 8 .6 .5 ,3 .2 Comumer's risk 05 10...
-
Two grade of coal $(A, B)$ are mixed to get a coal $(C)$ for blast furnace. The composition of coals and cost of coals are given in the table below Table 2.3 Composition and cost of coal Coal...
-
Due to a nationwide recession, PC Worlds merchandise inventory is gathering dust. It is now December 31, 2010, and the \($162,000\) that PC World paid for its ending inventory is \($14,000\) higher...
-
The condensed financial statements of Murawski Company for the years 2014 and 2015 are presented shown below. (Amounts in thousands.) Compute the following ratios for 2015 and 2014. (a) Current...
-
In 2007, DART was $1 B short for building a new suburban rail line out to Irving and Rowlett. One of the reasons for this budgetary shortage was high inflation in heavy construction sector in 2004,...
-
Posse Corporation plans to form a foreign subsidiary through which to conduct a new business in Country J. Posse projects that this business will operate at a loss for several years. a. To what...
-
solve f(x) = 6-2x^ 98-2
-
You are designing an engine that contains several pistons that each move \(150 \mathrm{~mm}\) per stroke. You believe the engine may consume less energy than a traditional engine if many of the...
-
For an environmental study, you need to collect temperature data for a year in a North American desert, where the temperature ranges from \(255 \mathrm{~K}\) in winter to \(320 \mathrm{~K}\) in...
-
You have a sample that contains \(9.70 \times 10^{21}\) particles of an unknown gas in a chamber that has a volume of \(0.0100 \mathrm{~m}^{3}\). The initial pressure in the chamber is \(1.84 \times...
-
A \(1.00-\mathrm{mol}\) sample of an ideal diatomic gas in which the gas particles both translate and rotate is initially at \(600 \mathrm{~K}\). Energy is then added thermally to the sample until...
-
A chamber fitted with a piston contains \(1.00 \mathrm{~mol}\) of a monatomic ideal gas that is taken from an initial state i to a final state \(f\) via states 1 and 2 . The chamber volume is...
-
Law on Partnership ( Arts 1 7 6 7 up to 1 8 6 7 of the New Civil Code ) 1 . DEFINITION OF PARTNERSHIP under art 1 7 6 7 of the new Civil Code 2 . CHARACTERISTIC ELEMENTS OF A CONTRACT OF PARTNERSHIP...
-
a. Show that the expansion of q(x) in ascending powers of x can be approximated to 10 2x + Bx 2 + Cx 3 where B and C are constants to be found. b. Find the percentage error made in using the series...
-
At the beginning of its 2015 tax year, Hiram owned the following business assets: On July 8, Hiram sold its equipment. On August 18, it purchased and placed in ser-vice new tools costing $89,000;...
-
Mr. and Mrs. L had the following income items: Dividend eligible for 0% preferential rate $ 3,400 Capital gain eligible for 0% preferential rate .. 2,900 Mrs. Ls salary .. 24,325 Mr. L is age 66, and...
-
Tom, Angela, and Peter want to become co-owners of a business enterprise. Compare their personal liability for the debts incurred by the enterprise if they organize as: a. A general partnership. b. A...
-
Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded? a. The billing department supervisor sends a copy of each approved sales...
-
If accounts receivable turnover (credit sales/receivables) was 7.1 times in 2009 compared to only 5.6 times in 2010, it is possible that there were a. Unrecorded credit sales in 2010. b. Unrecorded...
-
Smith Corporation has numerous customers. A customer file is kept on disk. Each customer file contains a name, an address, a credit limit, and an account balance. The auditor wishes to test this file...
Study smarter with the SolutionInn App