Consider an open economy with fixed prices, fixed exchange rates, and imperfect capital mobility. This economy is in external balance and characterized by the following behavioural equations: C = 60 + 0.8YD Pf = 2 I = 200 – 20i + 0.1Y P = 1 G = 300 TA = 0.25Y L = 0.2Y – 10i TR = 50 M/P = 200 X = 250 + 100 ePf /P CF = 25 (i – i*) Q = 400 – 50 ePf /P + 0.1Y i* = 9 a) What is the equation for the IS curve in this model?

• What is the equation for the LM curve in this model?                              
• What is the equation for the BP curve in this model?                               
• What are the values of Y, I, and e at which the goods market, the money market, and the external sector are simultaneously in equilibrium?                             

 What are the balances in the current account and the capital account in this equilibrium?

Answer rating: 100% (QA)

Solution a C 60 08YD 60 08 Y TA TR 60 08 Y 025Y 50 60 06Y 40 100 06Y NX X Q 250 200... View the full answer