Consider an economy described by the following equations: Y = C + I + G + NX

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.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Macroeconomics

ISBN: 978-1464168505

5th Canadian Edition

Authors: N. Gregory Mankiw, William M. Scarth

Question Posted: