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 net exports and the real exchange rate.

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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