Assume that the expected future exchange rate is unchanged and that the central bank holds the real money supply fixed.Draw an IS-LM-IP diagram to show the effect of the drop in consumer confidence. Label all axes and curves and mark all the values and equilibrium points appropriately. Consider an open economy flexible exchange rate IS-LM model with consumption,investment and net export functions:C = 550 +0.5(Y – T)I= 500-1000iNX = 350 - 1000E-0.3YSuppose that the interest parity condition is given as:E = 1+ Ee1+i*where the expected future exchange rate is fixed at = 1.05 and the foreigninterest rate is fixed at i* = 5%. Assume that G = T = 0.Let the real money supply be M³/P = 380 and the real money demand begiven by:Md/P=Y-500i

Given information C=550+0.5(Y-T) I=500-1000i NX=350-1000E-0.3Y E=Ee*(1+i)/(1+i*) i--- domestic…

Answered: Consider an open economy flexible…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Assume that the expected future exchange rate is unchanged and that the central bank holds the real money supply fixed. Draw an IS-LM-IP diagram to show the effect of the drop in consumer confidence. Label all axes and curves and mark all the values and equilibrium points appropriately.

Consider an open economy flexible exchange rate IS-LM model with consumption,
investment and net export functions:
C = 550 +0.5(Y – T)
I= 500-1000i
NX = 350 - 1000E-0.3Y
Suppose that the interest parity condition is given as:
E = 1+ Ee
1+i*
where the expected future exchange rate is fixed at = 1.05 and the foreign
interest rate is fixed at i* = 5%. Assume that G = T = 0.
Let the real money supply be M³/P = 380 and the real money demand be
given by:
Md/P=Y-500i

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