An open economy with absolute mobility of capital is described as follows: consumption function is given as C = 50+ 0,8(Y-T), where Y is output, and I is net taxes. Investment function is given as I = 20-10i, where I is nominal interest rate. Government spending G = 20, tax Tx = 10, export Ex = 6E + 10, import Im = 22-4E+0,3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). For one unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M³/P = 50. The demand for real money is described by the following function: L(Y, i) = 0, 5Y-10i. 4 Suppose that the nominal exchange rate is fixed. The government has increased government spending by 10. What is the level of output in the new external and internal equilibrium?

An open economy with absolute mobility of capital is described as follows: consumption function is given as C = 50+ 0,8(Y-T), where Y is output, and I is net taxes. Investment function is given as I = 20-10i, where I is nominal interest rate. Government spending G = 20, tax Tx = 10, export Ex = 6E + 10, import Im = 22-4E+0,3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). For one unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M³/P = 50. The demand for real money is described by the following function: L(Y, i) = 0, 5Y-10i. 4 Suppose that the nominal exchange rate is fixed. The government has increased government spending by 10. What is the level of output in the new external and internal equilibrium?

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Open-Economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 3QCMC

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