Question

This question explores IS and FX equilibria in a numerical example. The consumption function is C...

This question explores IS and FX equilibria in a numerical example.

The consumption function is C = 1.5 + 0.75(Y - T).

The trade balance is TB = 5(1 - 1/E ) - 0.25(Y - 8)

The investment function is I = 2 - 10i

Assume government spending is G

1. Assume foregin exchange market equilibrium is given by i = ( 1/E - 1)+0.10 where the two foreign return terms on the right are expected depreciation and the foreign interest rate. What is the foreign interest rate? What is the expected future exchange rate?

2. Solving for the IS curve, obtain an expression for Y in terms of i, G, and T (eliminate E).

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the...
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. Please explain how you obtained your answer (do not just state the effect). For each case, state the effect of the shock on the following variables (increase, decrease, no change, or ambiguous): Y, i, E, C, I and TB. Assume the government allows the exchange rate to float and makes no policy response. 1. The money supply increases. 2. Government spending increases. 3....
Assume that the consumption function is given by C = 200 + 0.5(Y – T) and...
Assume that the consumption function is given by C = 200 + 0.5(Y – T) and the investment function is I = 1,000 – 200r, where r is measured in percent, G equals 300, and T equals 200. A. What is the numerical formula for the IS curve? (Hint: Substitute for C, I, and G in the equation Y = C + I + G and then write an equation for Y as a function of r or r as...
Assume that the consumption function is given by C = 100 + 0.5(Y – T) and...
Assume that the consumption function is given by C = 100 + 0.5(Y – T) and the investment function is I = 1,000 – 100r, where r is measured in percent, G equals 200, and T equals 100. a. What is the numerical formula for the IS curve? (Hint: Substitute for C, I, and G in the equation Y = C + I + G and then write an equation for Y as a function of r or r as...
The IS Curve: Assume that the consumption function is given by C= 2000 + 0.6(Y– T)...
The IS Curve: Assume that the consumption function is given by C= 2000 + 0.6(Y– T) and the investment function is I= 4,000 – 200r, where r is measured in percent, G equals 3000, and T equals 2000. a) What is the numerical formula for the IS curve? (Hint:Substitute for C, I, and G in the equation Y= C + I + G and then write an equation for Y as a function of r or r as a function...
In A country the consumption function is: C (Y) = 5 + 0.75 Y The investments...
In A country the consumption function is: C (Y) = 5 + 0.75 Y The investments are I = 4; full employment income is YV = 40. a) How high must government expenditure be for full employment to be achieved? b) How high would government transfers to A-land citizens have to be to achieve the same goal? (Note: a transfer is like a negative tax, -T) c) Why is it that the state expenditure is higher for b) than for...
1. Use the money market and foreign exchange (FX) diagrams to answer the following questions. This...
1. Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro (e) and the U.S. dollar ($). Let the U.S. be “Home” and the European Monetary Union (EMU) be “Foreign”. Let the exchange rate be defined as U.S. dollars per euro, E$/e. Assume, for simplicity, that European money supply, M∗ , liquidity preferences L ∗ , price level P ∗ , nominal and real interest rates, i ∗...
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)...
In a closed economy, given the following: The consumption function C = 0.8(1 – 0.25) Y...
In a closed economy, given the following: The consumption function C = 0.8(1 – 0.25) Y + 12           The average tax rate t = 25% The level of private investment I = 26 The level of government spending G = 14 Where Y is the national income. Calculate the equilibrium level of income and output in the economy. Calculate the expenditure multiplier and show the effect of an increase in government spending and an increase in private investment.
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...
Assume that the consumption function is given by Ct = 150 + 0.75(Yt – T) I...
Assume that the consumption function is given by Ct = 150 + 0.75(Yt – T) I = 250; G = 500; T = 500 (2 point) Write down the planned expenditure as a function of current output/income (Yt): PE (Yt+1) = ____________________________________. (4 points) What is the equilibrium level of income? Show your work. (4 points) If G increases to 550, what is the new equilibrium level of income? Show your work. Given Yt+1=Ct+I+G Ct=50+0.8(Yt-T) I = 200 – 5r...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT