A small open economy is described by the following equations: C = 50 + 0.75(Y − T ) I = 200 − 20r NX = 200 − 50ε M/P = Y − 40r G = 200 T = 200 M = 3000 P=3 r∗ = 5 Derive and graph the IS∗ and LM∗ curves. Calculate the equilibrium exchange rate, level of income, and net exports. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find. Now assume a fixed exchange rate. calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find.

A small open economy is described by the following equations: C = 50 + 0.75(Y − T ) I = 200 − 20r NX = 200 − 50ε M/P = Y − 40r G = 200 T = 200 M = 3000 P=3 r∗ = 5 Derive and graph the IS∗ and LM∗ curves. Calculate the equilibrium exchange rate, level of income, and net exports. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find. Now assume a fixed exchange rate. calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter22: International Finance

Section: Chapter Questions

Problem 10QP

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