Consider an open economy at full employment with the factors described by the following relationships:
C=0.9Yd+100
I=600-2000i
G=600
T=1000
X=200
MS=0.1Y
M=550
Lm=0.25Y-1500i
where Y is the level of production, C is consumption, Yd is disposable income, i is the interest rate, T is taxes, I is investment, G is public spending, X is exports, M is imports, Lm is the demand for money, MS is the supply of money.
Prices and wages are rigid

Questions :

1) Determine and represent the simultaneous equilibrium on the B/S market and the financial market?

2) Determine the level of investment in this economy, and specify how it is financed?

Answer rating: 100% (QA)

Lets start by setting up the equilibrium conditions for the goods BS market and the financial market ... View the full answer