Consider the intertemporal model with two time periods. Home is a small open economy that can borrow and lend in the first period at a fixed world real interest rate of r* = 4%. In the first period output is Q0 = 800. Because of a recession, output in the second period output is expected to fall to Q1 = 500. The country wants to smooth consumption as much as possible. The country begins with no external assets or liabilities. Finally, assume that the intertemporal utility function at home is u(c0) + βu(c1) where β = 1/1+r* u is concave (i.e. consumers are risk averse and want to smooth consumption). (a) Solve for consumption, the current account, and financial account in the first period (t = 0). (b) Solve for the trade balance, current account, and financial account in the second period (t = 1). (c) Would Home be better off or worse off if the world interest rate is 1% instead of 4%? Explain using the appropriate equations.

Consider the basic Macroeconomic model involving:        Private sector consumption: C = co+c1(Y-T); Y = GDP, T = Taxes        Tax function: T = to+t1Y        Business sector investment: I = io+i2r, r=interest rate        Government spending: G = Go        Exports: X = xo+x1x; x = Exchange rate of the dollar        Imports: M = mo+m1Y+m2x; x = Exchange rate (a) Identify and explain the parameters: co, t1, i2, and m2. (b) Solve this model for the equilibrium GDP (Y*).

Analyze, using the IS-LM model, the macroeconomic effects of an increase in savings in the short term and its implications for long-term growth. Specifically, suppose that households (consumers) lose confidence and start saving more for any level of disposable income. Please answer the following question (with graphs where possible): How does the loss of consumer confidence affect production, investment andprivate savings?

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Assume a two-period small open economy model, where the national product is 50 in the current period, and 88 in the future period. The world real interest rate is 10% per period. The representative consumer has the following utility function: U(c,G,c’,G’) = ln(c+G) + ln(c’+G’). a) What are the optimal consumption plus government spending in the current and in the future period? What is the current account surplus? Show this in a diagram. b) Now, suppose that governments in the rest of the world impose a tax on lending to foreigners of 5%. Determine how this affects consumption plus government spending in the present and the future, and the current account surplus. Explain your results. c) Suppose that governments in the rest of the world still impose a tax on lending to foreigners of 5%. However, the national country found a huge reserve of oil and the current period income increased to 100. The Determine how this affects consumption plus government spending in the present and the…

Given a saving rate of 6%, a depreciation rate of 1%, and a production function in which y = k0.5 where y is output per worker and k is capital per worker, calculate the steady state values for capital per worker, output per worker, consumption per worker, and Calculate the golden rule steady state level of capital   Assuming an economy is at steady state, with the use of an appropriate diagram with descriptions illustrate the impact of a reduction in the saving rate on capital per worker and output per worker.   In the context of the Solow model, illustrate with appropriate descriptions the impact of increased migrant workers on capital per worker and output per worker in an economy.

Answer These Three Sub Parts i) In an open economy, Y = C + I + G + NX. Using symbols from this identity, write anexpression that defines national saving, S, in an open economy.S = _________________________ .  ii) True or False? In an open economy, the following is always true: S = I + NCO, where I isinvestment spending and NCO is net capital outflow.  iii)  In an open economy, a country’s net capital outflow is:a.) the value of domestic assets purchased by foreigners minus the value of foreign assetspurchased by domestic residentsb.) the value of foreign assets purchased by domestic residents minus the value of domesticassets purchased by foreigners.

Figure 32-4 Refer to the following diagram of the open- economy macroeconomic model to answer the questions that follow. REAL INTEREST RATE a to b. b to a. a to c. Graph (a) Od to a. с d b Refer to Figure 32-4. The initial effect of an increase in the budget deficit in the loanable funds market shown in graph (a) can be illustrated as a move from S₁ S₂ QUANTITY OF LOANABLE FUNDS REAL INTEREST RATE 88 TE 1.50 1.25 0.75 Graph (b) NCO NET CAPITAL OUTFLOW Graph (c) D₁ S₁ S₂ S₂ D₂ QUANTITY OF DOLLARS

Explain and show graphically how monetary and fiscal policies can be used in a closed economy IS-LM economy that is in a recession.

National saving is equal to Y-T-C. Oa. True Ob. False