National savings of a Classical small open economy is 120, Investment is 20, and the net export schedule is: NX = 200 - 50*(real exchange rate). If trade restrictions shift the net export function to NX = 300 - 50*(real exchange rate), in the new situation:
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National savings of a Classical small open economy is 120, Investment is 20, and the net export schedule is: NX = 200 - 50*(real exchange rate). If trade restrictions shift the net export function to NX = 300 - 50*(real exchange rate), in the new situation:
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- A small open economy is described by the following equations: C = 50 + 0.75(Y – T) |= 200 -20r NX = 200 - 50e M/P = Y - 40r G = 200 T= 200 M = 3,000 P= 3 r* = 5 The equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming a floating exchange rate, the equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming…A small open economy is described by the following equations: C = 300 + 0.8(Y – T) | = 220 - 40r NX = 300 - 60 e G = 200 T = 150 M = 1500 P = 3 r* = 5 L = Y - 60r If G increases by 30 to 230 Assuming fixed exchange rate: Equilibrium net exports is %3DConsider the following open economy. The real exchange rate is fixed and equal to one. Consumption,investment, government spending, and taxes are given by:C = 8 + 0.6(Y - T), I = G = T = 0.Imports/ exports are given by:Q = 0.4Y, X = 0.4Y*,where an asterisk denotes a foreign variable. if the domestic government increases spending by 6 units as in b) and G=0in the foreign country, the equilibrium output in the domestic country increases by units, and the trade balance in equilibrium is Now, suppose that the two countries coordinate in their fiscal policy. Both countries set atarget level of output of 30 and agree to increase G at the same amount. The common increase in Gnecessary to achieve the target output is and the trade balance is
- In 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by:C = 8 + 0.6(Y - T), I = G = T = 0.Imports/ exports are given by:Q = 0.4Y, X = 0.4Y*,where an asterisk denotes a foreign variable a. If the domestic government increases spending by 6 units (i.e., G increases from 0 to 6), the equilibrium output in the domestic country will increase by ____. and the trade balance will ________ (increase/decrease) by _____. b. Assume the foreign economy has the same equations as the domestic economy. Both governments consider the impact of the other country on the domestic economy. If the domestic government increases spending by 6 units as in b) and G=0 in the foreign country, the equilibrium output in the domestic country increases by _______ units, and the trade balance in equilibrium is _____. c. Please compare answer a) and b) regarding the equilibrium output and explain the difference.Suppose the U.S.-EU exchange rate is $1.15 per Euro, the U.S. has 5% inflation, and the EU has 10% inflation. Under these conditions the real U.S.-EU exchange rate, rounded to the nearest cent, is approximately: $1.20 per Euro $1.10 per Euro $1.30 per Euro $1.09 per Euro
- Explain why an increase in national saving (S) relative to investment (I) may lead to a current account surplus under flexible exchange rates.Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by:C = 8 + 0.6(Y - T), I = G = T = 0.Imports/ exports are given by:Q = 0.4Y, X = 0.4Y*,where an asterisk denotes a foreign variable a. Suppose that the domestic country takes foreign income Y* as given. The equilibrium output in the domestic economy is? b. Following a), if the domestic government increases spending by 6 units (i.e., G increases from 0 to 6), the equilibrium output in the domestic country will increase by ____. and the trade balance will ________ (increase/decrease) by _____. c. Assume the foreign economy has the same equations as the domestic economy. Both governments consider the impact of the other country on the domestic economy. If G=0, then the equilibrium output in both countries is ______ and the trade balance is ______. d. Following c), if the domestic government increases spending by 6 units as in b) and G=0…You have the following annual figures for the New Zealand economy. Investment expenditure $40.6 billion Net Exports $3.6 billion Net Foreign Income -$9.5 billion The current account balance is equal to $____billon (use 1 d.p. and a negative sign if the balance you have calculated is a deficit). New Zealand domestic savings is equal to $____billon (use 1 d.p.). Suppose that the government introduces a policy that bans foreign investment in New Zealand. If that happens then (everything else held constant) we would expect to see the current account balance -rise -remain the same. -fall -become harder to predict Suppose that along with the above policy, the government also wishes to see investment levels maintained. If that is to occur, what else must be happening in the economy? - The Government must raise taxes. - Firms must be offered incentives to invest. - New…
- Consider the following open economy. The real exchange rate is fixed and equal to one. Consumption,investment, government spending, and taxes are given by:C = 8 + 0.6(Y - T), I = G = T = 0.Imports/ exports are given by:Q = 0.4Y, X = 0.4Y*,where an asterisk denotes a foreign variable.Question Following a), if the domestic government increases spending by 6 units (i.e., G increasesfrom 0 to 6), the equilibrium output in the domestic country will increase by unitsand the trade balance will (increase/decrease) by units. Question c): Assume the foreign economy has the same equations as the domestic economy. Bothgovernments consider the impact of the other country on the domestic economy. If G=0, then theequilibrium output in both countries is and the trade balance is Following c), if the domestic government increases spending by 6 units as in b) and G=0in the foreign country, the equilibrium output in the domestic country increases by units, and the trade balance in equilibrium is…Assume that a small open economy with a fixed exchange rate is given by: LM curve is given by: Y = 700 r – 250 + 2(M/P) IS curve is given by: Y = 400 + 3G – 2T + 3NX – 300 r Function for the net exports is: NX = 550 – 100 e (where e is the exchange rate) Price level is fixed at 1 World interest rate is r* = 2 Exchange rate is initially = 3 If M = 200, G = 350, and T = 200, solve for: a. The equilibrium short-run value of Y = b. The equilibrium short-run value of NX =How and why will switching from a flexible to fixed exchange rate regime affect exports as a percentage of GDP/ Exports-GDP-ratio