7. Consider Two large open economics, the home economy and the foreign economy. In the home count...
7. Consider Two large open economics, the home economy and the foreign economy. In the home country the following relationships hold:
desired consumption, Cd = 420+0.4(Y-T)-200rw
desired investment, Id =250-200rw
output, Y =1000
TAXES, t = 200
Government purchases, G =275
In the foreign country the following relationships hold:
Desired consumption, Cdfor = 480+0.4(Yfor-Tfor)-300rw
Desired investment, Idfor=225-300rw
Output, Yfor = 1500
Taxes, T for =300
Government purchase, G for =300
- What is the equilibrium interest rate in the international capital market? What are the equilibrium values of consumption, national savings, investment, and the current account balance in each country?
- Suppose that in the home country government purchases increase
by 50 to 325. Taxes also increase by 50 to keep the deficit from
growing. What is the new equilibrium interest rate in the
international capital market? What are the new equilibrium values
interest rate in the international capital market? What are the new
equilibrium values of consumption, national saving, investment, and
current account balance in each country?
7. Consider Two large open economics, the home economy and the foreign economy. In the home country the following relationships hold:
desired consumption, Cd = 420+0.4(Y-T)-200rw
desired investment, Id =250-200rw
output, Y =1000
TAXES, t = 200
Government purchases, G =275
In the foreign country the following relationships hold:
Desired consumption, Cdfor = 480+0.4(Yfor-Tfor)-300rw
Desired investment, Idfor=225-300rw
Output, Yfor = 1500
Taxes, T for =300
Government purchase, G for =300
- What is the equilibrium interest rate in the international capital market? What are the equilibrium values of consumption, national savings, investment, and the current account balance in each country?
- Suppose that in the home country government purchases increase by 50 to 325. Taxes also increase by 50 to keep the deficit from growing. What is the new equilibrium interest rate in the international capital market? What are the new equilibrium values interest rate in the international capital market? What are the new equilibrium values of consumption, national saving, investment, and current account balance in each country?
Homework Answers
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7. Consider Two large open economics, the home economy and the foreign economy. In the home count...
Consider two large open economies, the home economy and the foreign economy. In both countries th...
Can someone please explain?
Consider two large open economies, the home economy and the foreign economy. In both countries the following relationships hold Domestic Foreign Desired consumption, Cd-320 + 0.4(Y-T)-200rw. Desired investment, 150 200* Output, Y = 1.000 Taxes, T 200 Government purchases. G 275 Fr4800.4(YFr To 300r. For 225 300 For1,500 For-300 For 300 a. What is the equilibrium interest rate in the international capital market?(Enter your response as a decimal rounded to three places.) What are the equilibrium...
An economy has full-employment output of 9,000, and government purchases are 2,000. Desired consumption and desired...
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 = =
2. Consider a large open domestic economy with a financial account surplus. i. Draw a diagram sho...
2. Consider a large open domestic economy with a financial account surplus. i. Draw a diagram showing this situation (Your answer should include two graphs, one for the omestic economy and one for the foreign economy). (10 Points)- Note: Draw the two graphs side by side and clearly indicate the world interest rate as a single line going through both graphs. ii. What are the effects, in equilibrium, on the world real interest rate, domestic national saving, domestic investment, the...
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is...
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is at the short-run equilibrium, and the domestic and foreign bonds pay the same interest rate. The government aims at increasing households' consumption to stimulate an economic recovery. Which policy should the government adopt? [2p] a. b. Explain the main economic adjustments leading to the new short-run equilibrium income and interest rate. [4p] How does the policy of the government affect the balance...
V. Consider an open economy in which the real exchange rate is fixed and equal to...
V. Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by C= 10 + 0.8(Y-T), l = 10, G = 10, and T= 10 Imports and exports are given by where Y" denotes foreign output. ECON 105B a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports...
V. Consider an open economy in which the real exchange rate is fixed and equal to...
V. Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by С 10 + 0.8(Y-T), l 10, G-, 10, and T-10 Imports and exports are given by IM 0.3Y and X 0.3Y where Y" denotes foreign output. ECON 10SB Solve for equilibrium output in the domestic economy, given Y. What is the multiplier in this economy? If we were to close the economy-so exports and...
Consider two open economies in which the real exchange rate is fixed and equal to one....
Consider two open economies in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, taxes, imports and exports are given by equations below for each economy. Variables with * denote values for the foreign economy. Domestic Economy: C= 12 + 0.8 (Y-T) I= 8 G= 10 T=11 IM= 0.2Y EX= 0.2Y* Foreign Economy: C*= 12+ 0.8 (Y*-T*) I*=8 G*=10 T*=11 IM*= 0.2Y* EX= 0.2Y a) Solve for the equilibrium output in the domestic economy,...
7. If at some interest rate desired investment is $400 billion, desired private saving is $600...
7. If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates? 8. In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, public saving and...
2. The country, Hoosier (a closed economy), has the following data: GDP: Y = 1200, Consumption:...
2. The country, Hoosier (a closed economy), has the following data: GDP: Y = 1200, Consumption: C = 600 – 10,000 r, Taxes: T = 200, Government purchases: G = 300. The investment is I = 700 – 10,000 r a. Use the information above to find the supply and demand equations for loanable funds: i. Supply equation: ii. Demand equation: _ b. What is the equilibrium interest rate, r, and what are national saving and investment, S and I?...
Consider the following classical economy: Desired consumption: C9 = 320 + 0.500 Y - 200r. Desired...
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 = ||...
Can someone please explain?
Consider two large open economies, the home economy and the foreign economy. In both countries the following relationships hold Domestic Foreign Desired consumption, Cd-320 + 0.4(Y-T)-200rw. Desired investment, 150 200* Output, Y = 1.000 Taxes, T 200 Government purchases. G 275 Fr4800.4(YFr To 300r. For 225 300 For1,500 For-300 For 300 a. What is the equilibrium interest rate in the international capital market?(Enter your response as a decimal rounded to three places.) What are the equilibrium...
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 = =
2. Consider a large open domestic economy with a financial account surplus. i. Draw a diagram showing this situation (Your answer should include two graphs, one for the omestic economy and one for the foreign economy). (10 Points)- Note: Draw the two graphs side by side and clearly indicate the world interest rate as a single line going through both graphs. ii. What are the effects, in equilibrium, on the world real interest rate, domestic national saving, domestic investment, the...
2. Consider a small open country (Veniceland) with flexible exchange rate and perfect capital mobility. The economy is at the short-run equilibrium, and the domestic and foreign bonds pay the same interest rate. The government aims at increasing households' consumption to stimulate an economic recovery. Which policy should the government adopt? [2p] a. b. Explain the main economic adjustments leading to the new short-run equilibrium income and interest rate. [4p] How does the policy of the government affect the balance...
V. Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by C= 10 + 0.8(Y-T), l = 10, G = 10, and T= 10 Imports and exports are given by where Y" denotes foreign output. ECON 105B a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports...
V. Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by С 10 + 0.8(Y-T), l 10, G-, 10, and T-10 Imports and exports are given by IM 0.3Y and X 0.3Y where Y" denotes foreign output. ECON 10SB Solve for equilibrium output in the domestic economy, given Y. What is the multiplier in this economy? If we were to close the economy-so exports and...
2. The country, Hoosier (a closed economy), has the following data: GDP: Y = 1200, Consumption: C = 600 – 10,000 r, Taxes: T = 200, Government purchases: G = 300. The investment is I = 700 – 10,000 r a. Use the information above to find the supply and demand equations for loanable funds: i. Supply equation: ii. Demand equation: _ b. What is the equilibrium interest rate, r, and what are national saving and investment, S and I?...
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 = ||...
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