Consider a small open economy under the floating exchange rate system, which is described by the...

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Consider a small open economy under the floating exchange rate system, which is described by the following equations: Y=C+I+G+NX, Y = 6,000, G=2,000, T= 2,000, C = 1500+0.5(Y-T), 1=1,000-50r, NX = 500-400e. r=r² =4. 1. Solve for the GDP, the investment, the trade balance, and the equilibrium exchange rate 2. Suppose now that G rises to 2400. Solve for the GDP, the investment, the trade balance. and the equilibrium exchange rate. Explain what you find. 3. How would your answer to the above question change under the fixed exchange rate Consider a small open economy under the floating exchange rate system, which is described by the following equations: Y=C+I+G+NX, Y = 6,000, G=2,000, T= 2,000, C = 1500+0.5(Y-T), 1=1,000-50r, NX = 500-400e. r=r² =4. 1. Solve for the GDP, the investment, the trade balance, and the equilibrium exchange rate 2. Suppose now that G rises to 2400. Solve for the GDP, the investment, the trade balance. and the equilibrium exchange rate. Explain what you find. 3. How would your answer to the above question change under the fixed exchange rate

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SOLUTION To solve the given equations well substitute the known values and solve for the unknown variables 1 Solve for the GDP investment trade balance and equilibrium exchange rate Given Y 6 G 2000 T ... View the full answer