Question

E. The following equations describe the domestic economy: C = 20+ 0.8Y I = 0, G =0, X = 0.03Y* and Q=0.3Y And the following equations describe the foreign economy: C* = 200+ 0.8Y I* = 0, G* = 0, X* = 75 +0.25Y, and Q* = 0.1Y* Suppose the real exchange rates in both economies are fixed and equal to one. 1. Find equilibrium Y and Y*. 2. Suppose that the domestic economy experiences a 10% drop in its autonomous con- sumption, i.e. the consumption function changes to C = 18 +0.8Y Find the percentage decreases in equilibrium Y and Y*. 3. Suppose that the foreign economy experiences a 10% drop in its autonomous consump- tion, i.e. the foreign consumption function changes to C = 180 +0.8Y Find the percentage decreases in equilibrium Y and Y.

Answer 1

Date detieney AcA The C+1tat (x-a) As 2oto8 ()t oto +(0.03y -0.2y) 2ot0.5(y) +0-03 (y*) 0+ 0.03 (y*) 0-5(y) Thee Foraigh Eceaemy As y (t I t( x- m 200+ 0.8ytoto t75 t o2sy-0y y -0.7 y २१5 + ০: २ऽ१ 0.3 275 0.23 G we Usi-g g Ci) and 0.3 (y*)27s 0.25 (0 +0.06 y 0.3 y S t0.01I5 ০२४5 ४* - 285 y 1000

Page No. Date: and Y 40 + 0.06 (1000) 40 +60 The donestis Econemy 18 + 0.8y +oto+ (0:03y*-0.3y +0.03 (y*) 0.03 (yA) 36 t0.06 (y*) > 18 The Epuation fotoreign eco ieaa Suene +o06y 3CyA) 25+0Rs (36 + 0.015 * So 996.5 996.49 26 0.06 (996.5) -3 6 59- 5-8 95.79 ५.२). 5.8-100 Yoo 2 decrease O.35 7 946.51000 decreane A(y

Date Jc ६,v० b Do~E« १to0० ०7 P९Cedn C3) Samp + 006 (y) ५० TAe fondp~ हco०० c१vetr/on ts } कि 1 80 + 0-६ (y) + 0 + 0 + (7s+02sy -019) २ऽऽ + ० 8 y° + 0 ২১ y - ০- ) y* O-3 y + 0.२5 (y) १ऽऽ ০-2y* - २ऽऽ +े 0২5 (५० + 0:০6 y*) १ ॐ . ২65 + ०.०।5y* रद 0-3y* ddP 0 २४ऽ ४ * - ২6S 2 )০0 ৭২৭ -৪ ২ १২१-४ २/ ad ५० + 0 06 (१२१-४ ) y: = १५.१४१ ०१९-४ 2. de cceone 1- (y*) = १२५-४-1००० = 2.०२/- ००० ,08 / ean९ ।, (y) : - 000 १९.४-1०० ५.२ ). ।००