Question
Assume the economy is described by the following: Y=3,000 C=200+0.9(Y-T) I=400-40r G=T=500 R=5 NX=400-400e Solve for...
Assume the economy is described by the following:
Y=3,000
C=200+0.9(Y-T)
I=400-40r
G=T=500
R=5
NX=400-400e
Solve for net exports and the real exchange rate.
Homework Answers
Answer #1
As,
So, 3,000 = 200 + 0.9(Y-T) + (400-40r) + 500 + (400-400e)
As, r = 5, T = 500 and Y = 3,000
So, 3,000 = 200 + 0.9(3000-500) + (400-40*5) + 500 + (400-400e)
So, 3000 = 200 + 0.9*2500 + (400-200) + 500 + 400 - 400e
3000 = 200 + 2250 + 200 + 500 + 400 - 400e
3000 = 3550 - 400e
400e = 3550 - 3000 = 550
So, e = 550/400 = 11/8 = 1.375
As, NX = 400 - 400e = 400 - 400*1.375
NX = 400 - 550
NX = -150
- So, Net exports (NX) is -150 and real exchange rate (e) is 1.375
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