Question

Consider the following economy (with flexible exchange rate system): • Desired consumption: Cd = 300 +...

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

(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. (5 points)
(b) What are the equilibrium values of the real interest rate, the real exchange rate, and net exports? (8 points)
(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)
(f) Using the IS-LM-FE model, evaluate the effects of a rise in full employment output to Y ̄ = 940 (12 points)
Short run effects on the real interest rate, exchange rate, net export, real money demand (6 points)
Long-run effects on of the above and the price level. (6 points)
Note that you have to who the effects by calculating the values of the respective variables
(g) Show the short-run and long-run effects of a rise government expenditure to 120 (8 points)
(h) Show the short-run and long-run effects of a rise in money supply to 6531. (8 points)

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. An economy has full-employment output of 5000. Government purchases are 1000. Desired consumption and desired...
1. An economy has full-employment output of 5000. Government purchases are 1000. Desired consumption and desired investment are given by Cd= 3600 - 2000r + 0.10Y Id = 1200 - 4000r where Y is output and r is the expected real interest rate. (a) Find the real interest rate that clears the goods market. Assume that output equals full-employment output. (b) Calculate the amount of saving, investment, and consumption in equilibrium.
Suppose desired consumption and desired investment are ?? = 300 + 0.75(? − ?) − 300?...
Suppose desired consumption and desired investment are ?? = 300 + 0.75(? − ?) − 300? T = 100 + 0.2Y ?? = 200 − 200? G is the level of government purchases and G=600 Money demand is ?? ? = 0.5? − 500(? + ??) where the expected rate of inflation, ??, is 0.05. The nominal supply of money M = 133,200. Suppose the full employment output is 2500 and the price level in the short run is 120....
The components of planned aggregate spending in a certain economy are given by Consumption Function: C...
The components of planned aggregate spending in a certain economy are given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r Planned Investment: I p = 400–3000r Government Revenue and Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the real interest rate (For example, r = 0.01 means that the real interest rate is 1 percent). (1) Find the level of public saving. (2) Suppose that the real interest...
3. The components of planned aggregate spending in a certain economy are given by Consumption Function:...
3. The components of planned aggregate spending in a certain economy are given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r Planned Investment: Ip = 400–3000r Government Revenue and Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the real interest rate (For example, r = 0.01 means that the real interest rate is 1 percent). (1) Find the level of public saving. (2) Suppose that the real interest...
9. 16 A CLOSED economy is described as follows: Cd = 100 + .6(Y-T) - 200r...
9. 16 A CLOSED economy is described as follows: Cd = 100 + .6(Y-T) - 200r Id = 400 - 1000r L = 0.25Y - 750(i) pe = 0% G = 70 T = 50 M = 675 P = 6 (NFP = 0, of course, since it is closed) Ῡ = 810 Provide a IS/LM/FE diagram depicting the Short-run equilibrium and the Long-run equilibrium. Provide a AD/AS diagram depicting the short run equilibrium and the long-run equilibrium
For questions 1 through 9, suppose the structure of an economy with a flexible exchange rates...
For questions 1 through 9, suppose the structure of an economy with a flexible exchange rates is represented by the following equations: C = 400 + 0.85*(Y – T) L(r, Y) = 0.25*Y – 25*r T = 200 MS /P = 2250 I = 1700 – 25*r G = 1800 NX = 900 – 200*e where e represents the real exchange rate 1. Intuitively, the real exchange rate affects net exports (NX) (a) negatively because real depreciations (e↓) make domestic...
Consider the following short-run, open economy model of the economy. Goods Market C = 100 +...
Consider the following short-run, open economy model of the economy. Goods Market C = 100 + 0.9(Y − T) I = 50 − 7.5r; NX = −50 G = 200; T = 100 Money Market M = 4,000 P = 10 L(r, Y) = Y − 350r a. (4 pts) Derive the IS and LM equations and put them on a graph with the real interest rate (r) on the vertical axis and real GDP (Y) on the horizontal axis....
Consider a small open economy given by the following: Consumption Function: Ct = 17.2 + 0.7(Yd)t...
Consider a small open economy given by the following: Consumption Function: Ct = 17.2 + 0.7(Yd)t Investment Function: It = 24 -100rt Real Demand for Money: Lt = 6Yt-1400r Net Exports Schedule: NXt = 8 – 4et Government Spending: G0 = 36 Tax Collections: T0 = 36 World Interest Rate: r0 = 0.15 Price Level: P0 = 4 Domestic Money Supply: M0 = 2520 Assume further that the economy is currently at the long-run equilibrium. (10 points) Graph the situation...
2) Consider the following Keynesian model of the economy. Consumption Function: C = 12 + .6...
2) Consider the following Keynesian model of the economy. Consumption Function: C = 12 + .6 Y d, Investment Function: I = 25 − 50 r, Government Spending: G = 20, Tax Collections: T = 20, Money Demand Function: L d = 2 Y − 200 r, Money Supply: M = 360, Price Level: P = 2. a) Find an expression for the IS curve and plot it. b) Find an expression for the LM curve and plot it. c)...
Consider an economy that is described by the following equations: C^d= 300+0.75(Y-T)-300r T= 100+0.2Y I^d= 200-200r...
Consider an economy that is described by the following equations: C^d= 300+0.75(Y-T)-300r T= 100+0.2Y I^d= 200-200r L=0.5Y-500i Y=2500; G=600; M=133,200; Pi^e=0.05. (Pi being the actual greek pi letter sign). Please solve part D and E (a) obtain the equation of the IS curve (b) obtain the equation of the LM curve for a general price level, P (c) assume that the economy is initially in a long-run (or general) equilibrium (i.e. Y=Y). Solve for the real interest rate r, and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT