Question

Y = C + I + G + NX

Y = 18,500; G = 4,000; T = 2,000

C = 750 + 3/4 (Y - T)

I = 1,000 - 50r

CF = 750 - 25r

NX = 1,825 - 150ϵϵ

The world interest rate increases to r* = 10. Solve for
consumption, private and public saving, national saving,
investment, the trade balance, the net capital outflow (net foreign
investment), the domestic real interest rate, and the real exchange
rate. (*Hint*: To solve you need CF as a function of only r,
so use the value of r* in the CF function to leave it like that and
solve the model.)

Answer #1

**Answer:**

The world interest rate increases to r* = 10. Solve for consumption, private and public saving, national saving, investment, the trade balance, the net capital outflow (net foreign investment), the domestic real interest rate, and the real exchange rate. (Hint: To solve you need CF as a function of only r, so use the value of r* in the CF function to leave it like that and solve the model.)

**CF = 750 - 25r**

**= 750 - 25 (10) = 750 - 250 = 500**

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