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 isnominal interest rate. Government spending G = 20, taxTr = 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). Forone unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M /P=50. Thedemand for real money is described by the following function: L(Y, i) = 0, 5Y-10i.Find IS curve in the form Y=a-bi+cE, where a,b,c are constants. Type in the answer these constants with spacesand commas between them, that is: a, b, c.

To find IS curve, we use the following formula Y = C + I + G + Ex - Im

Answered: An open economy with absolute mobility…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 Ta = 10, export Ex = 6E 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. 10, import Im = 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?
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