Problem 5 (8 marks) The following table describes the goods market, money market and the FX...

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Problem 5 (8 marks) The following table describes the goods market, money market and the FX market in an economy: Goods Market C = 300+ 0.75(YT) I=400-2,000i G = 500 Money Market FX Market T=400 M= 1075 E=2 ( = 0) L= 0.5Y 5,000i 8% TB = 400(1 - 2/E) - 0.3(Y-100) P=2 a. Find the MPC, MPC, MPC, and MPS for this economy. b. Find an expression for the exchange rate as a function of interest rate. c. Express IS and LM curves as functions of the interest rate. d. Find the equilibrium (home) interest rate, i, and the equilibrium (home) output, Y. Calculate consumption, investment, trade balance, and exchange rate at the economy's equilibrium. e. Assume the government implements an expansionary monetary policy and increases the government spending to 600. Using the IS-LM-FX model, show graphically and explain the impact of this policy on the following variables: Y, i, E, C, I, TB. You do not have to calculate the new values. Problem 4 (8 marks) For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: i, E, C, I, TB. Assume that the Central Bank responds to each shock by using monetary policy to stabilize output.. a. Foreign income increases. b. Investors expect an appreciation of the home currency. Problem 5 (8 marks) The following table describes the goods market, money market and the FX market in an economy: Goods Market C = 300+ 0.75(YT) I=400-2,000i G = 500 Money Market FX Market T=400 M= 1075 E=2 ( = 0) L= 0.5Y 5,000i 8% TB = 400(1 - 2/E) - 0.3(Y-100) P=2 a. Find the MPC, MPC, MPC, and MPS for this economy. b. Find an expression for the exchange rate as a function of interest rate. c. Express IS and LM curves as functions of the interest rate. d. Find the equilibrium (home) interest rate, i, and the equilibrium (home) output, Y. Calculate consumption, investment, trade balance, and exchange rate at the economy's equilibrium. e. Assume the government implements an expansionary monetary policy and increases the government spending to 600. Using the IS-LM-FX model, show graphically and explain the impact of this policy on the following variables: Y, i, E, C, I, TB. You do not have to calculate the new values. Problem 4 (8 marks) For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: i, E, C, I, TB. Assume that the Central Bank responds to each shock by using monetary policy to stabilize output.. a. Foreign income increases. b. Investors expect an appreciation of the home currency.