Consider the following economy (with flexible exchange rate
system): • Desired consumption: Cd = 300 + 0.5Y −2000r • Desired
investment: Id = 200−3000r • Government purchases: G = 100 • Net
export: NX = 350−0.1Y −0.5e • Real exchange rate: e = 20 + 1000r •
Full employment: ¯ Y = 900. • Nominal money stock: M = 4354 • Real
money demand: L = 0.5Y −200r
1
(a) Find the equations for NX(r,Y )) and Sd(r,Y )−Id(r) and show
the graph characterizing goods market equilibrium for the given
full-employment output level.
(c) Present the goods market equilibrium condition graphically while depicting all the possible points and intersections using their correct values (5 points)
(d) Find IS equation (2 points)
(e) Determine the LM equation using the GE price level (4 points)
Consider the following economy (with flexible exchange rate system): • Desired consumption: Cd = 300 +...
Consider the following classical economy: Desired consumption: C9 = 320 + 0.500 Y - 200r. Desired investment: P = 200 - 300r. Government purchases: G = 100. Net exports: NX = 140 - 0.100Y - 0.500e. Real exchange rate: e = 18 + 600r. Full-employment output: Y = 900. a. What are the equilibrium values of the real interest rate, real exchange rate, consumption, investment, and net exports? Real interest rate = Real exchange rate = ||| Consumption = ||...
B3. Open Economy IS-LM-FE model: The behaviour of households and firms in an open economy is represented by the following equations: Full-employment outputY-1200 red consumption Cd = 350 + 0.5Y-200r : Desired investmentd 250-300r Government purchasesG 95 Net exports : NX = 100-01-05e Real exchange rate : 90. Assume that the real interest rate, r, does not deviate from the foreign interest rate and that the economy is initially in general equilibrium. ve the open-economy IS curve writing the real...
An economy has full-employment output of 9,000, and government purchases are 2,000. Desired consumption and desired investment are as follows: Real Interest Rate(%) Desired Consumption 6,100 6,000 5,900 5,800 5,700 Desired Investment 1,300 1,200 ou AWN 1,100 1,000 900 c. If the goods market is in equilibrium, what are the values of the real interest rate, desired national saving, and desired investment? r=%, sd = =
Desired consumption, desired investment, and government spending in a closed economy are Cd = 260 - 100r + 0.2Y Id = 100 - 300r G = 220 What value of the real interest rate clears the goods market when Y = 600? (Please show your work)
Desired consumption, desired investment, and government spending in a closed economy are Cd = 260 - 100r + 0.2Y Id = 100 - 300r G = 220 What value of the real interest rate clears the goods market when Y = 600? (Please show your work)
Consider the following model of the economy Production function: Y = A·K·N – N2/2 Marginal product of labor: MPN = A·K – N. where the initial values of A = 10 and K = 10. The initial labor supply curve is given as: NS = 50 + 4w Initial conditions in the goods market Cd = 790 + .50(Y-T) – 500r Id = 1000 – 500r G = 800 T = 100 Md/P = 110 + 0.5Y- 1000(r + πe) ...
1) Suppose the marginal product of labor in the economy is given by MPN = 0.005(18,000 - .005N), while the supply of labor is 2000 + 1000w. (a) Find the market-clearing real wage rate and level of employment. (b) What happens to the wage rate and employment if wealth rises, reducing the supply of labor to 200 + 1000w? 2) Find the interest rate that clears the goods market of an economy that has has full-employment output of 5000. Government...
Consider the Mundell-Fleming short-run model of a small open economy under floating exchange rates described by the following equations (1) through (7). Assume that there are free capital flows and that interest rate parity holds so that where 5 is the world interest rate. (1) Cu 400+0.8 (Y-D: (2) 1 = 850-60r (3) G = 1200; (4) T=1000 + 0.25Y: (5) NX = 600 - 200e : (6) Y=C+I+G+ NX; (7) (M/P )= 0.5Y -50rt. Equation (6) is the goods...
A small open economy is described by the following set of equations: C = 300 + 0.6(Y − T) I = 700 − 80r NX = 200 − 50ε G = T = 500 (Balanced Budget) (M/P)^d = Y − 200r M = 3, 000 P = 3 r ∗ = 5 (a) Derive and graph the IS∗ and LM∗ curves. (b) Calculate the equilibrium exchange rate, income and net exports. (c) Assume a floating exchange rate. Calculate what happens...
Question 1: IS-LM-AD in a closed economy (35 Marks) The following represent the key equations for a closed economy: Md 18+0.5Y-450 Money demand C" = 6 + 0.8(Y-T)-250r 1 -33-200r u-u0.3 a) Write out the equations for the IS and LM curves for this economy, with the real Desired consumption Desired investment Initial budget position Okun's law Y-Y rate of interest (r) on the left-hand side. Next, use these relationships to find the AD curve, written with output (Y) on...