(a) Consider a two period model of a small open economy. Being careful to state any assumptions you make, derive the optimal level of consumption as a function of current and future output.   (b) Consider a growing economy (i.e., output tomorrow is greater that output today). Show that this economy will run a current account deficit and show that there are welfare gains from borrowing internationally.

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, andT 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 M /P= 50. The demand for real money is described by the following function: L(Y,i) = 0, 5Y-10i. Suppose that the nominal exchange rate is fixed. The government has increased government spending by 10. What is the level of the exchange rate in the new external and internal equilibrium?

Consider the following small open economy model with production. At dates 1 and 2, the home country receives exogenous fixed endowments y1 and y2 respectively. The home country has access to the international capital market at a fixed interest rate r* at which it can save or borrow. Let the net saving of the home country be s1 and its consumption stream in two periods be given by c1 and c2 respectively.the following maximization problem: Max ln c1 + ln c2   s.t. C1 + S1 = Y1   C2 = C1(1+r*) + Y2   Derive optimal consumption and current account functions and carefully interpret it in terms of a two-period Fisherian graph.   Refer to (a). Suppose the home country also has an access to an investment technology which means that if it invests k units at date 1, it produces y2 = Aka units of output in the next period where A >0 and 0 < a< 1 . Modify budget constraints for (a)Derive the optimal investment and saving rules for this economy assuming the same logarithmic utility…

What role do you think international trade and foreign investment can play in solving some of the problems identified in the big push model?

Economists are of the view that the Mundell-Fleming Model is quite useful for explaining economic fluctuations in small open economies. Critically assess this statement.

Consider a country with no capital mobility and flexible exchange rates. a. Solve for the exchange rate that clears the trade balance as a function of the level of income, Y. (Assume that the trade balance is in the form T =T, + øq– mY where øis a positive constant and q = (eP*/P)). b. Solve for the level of income as a function of all exogenous variables. In what way does the multiplier differ from all other open economy multipliers computed before?

What are the potential effects of a country consistently running large current account deficits? A. It indicates strong economic growth and therefore attracts more foreign investment. B. It may lead to depreciation of the country's currency and increased foreign debt. C. It ensures long-term financial stability and economic prosperity. D. It decreases interest rates and increases domestic consumption.

Discuss In Detail Four Features Of The Traditional And Continuing Features Of The Japanese Economy.

Consider Figure 14.7, which shows the relationship between cultural modernization and income per capita. In which case will the “modernization multiplier” be larger: when the M(Y) curve is flat, or when it is steep, although less steep than the Y(M)curve? What is the economic interpretation of the slope of the M(Y) curve?

In a developing economy that primarily relies on agriculture, the government decides to implement a series of reforms aimed at liberalizing the financial sector, including easing restrictions on foreign bank entry. What is the most likely short-term impact of these reforms on the agricultural sector's access to credit?  A) Increased access to credit for the agricultural sector due to enhanced competition in the banking sector.  B) Decreased access to credit for the agricultural sector as foreign banks focus on more profitable urban and industrial clients.  C) No significant change in access to credit for the agricultural sector, as foreign banks have minimal impact on local lending.  D) A shift in credit allocation from large agricultural businesses to small-scale farmers due to diversified lending practices of foreign banks.