(Q1-Q3] are based on the initial (Situation 0] below:[Situation 0]• Since LONG AGO, the home country has been in a LR eq'm, wherei) PPP holds,i) the expected ER (i.e., E") is equal to the actual spot ER (i.e., E),iii) P = P = 1, Y, = Ypotentiativ) i = i =5 (%)• Note: interest rates are in % terms, so you need to use i = i' + 100(E /E - 1)• The initial ISo curve is a straight line as shown in the [FIGURE 1_Handout (FINAL) , andits slope (45- degree) is preserved when it shifts.• Consumption: C = Č + MPC x (Y – T), MPC=0.75• Investment: I depends negatively on nominal interest rate i.• TB= TB +2.5 x (EP"/P)-0.5 x Y, TB, = 0• Money demand: MD = P x (Y - i+2 + 4), where the money demand shock v is 0.• Money supply: M = 2. 3. Find the values of (TB, E, Ee) in " Equilibrium 0."O 1) @ (0, 1, 1)O 2) 6 (0, 2, 2)O 3) © (2, 1.5, 1.5)O 4) @ none of a-c

Answered: Image /qna-images/answer/b825196b-0f2f-48f9-ae0c-413f6e22d8f7.jpg

Answered: 3. Find the values of (TB, E, Ee) in "…

3. Find the values of (TB, E, Ee) in " Equilibrium 0." O 1) @ (0, 1, 1) O 2) 6 (0, 2, 2) O 3) © (2, 1.5, 1.5) O4) @ none of a-c

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(Q1-Q3] are based on the initial (Situation 0] below:
[Situation 0]
• Since LONG AGO, the home country has been in a LR eq'm, where
i) PPP holds,
i) the expected ER (i.e., E") is equal to the actual spot ER (i.e., E),
iii) P = P = 1, Y, = Ypotentiat
iv) i = i =5 (%)
• Note: interest rates are in % terms, so you need to use i = i' + 100(E /E - 1)
• The initial ISo curve is a straight line as shown in the [FIGURE 1_Handout (FINAL) , and
its slope (45- degree) is preserved when it shifts.
• Consumption: C = Č + MPC x (Y – T), MPC=0.75
• Investment: I depends negatively on nominal interest rate i.
• TB= TB +2.5 x (EP"/P)-0.5 x Y, TB, = 0
• Money demand: MD = P x (Y - i+2 + 4), where the money demand shock v is 0.
• Money supply: M = 2.

3. Find the values of (TB, E, Ee) in " Equilibrium 0."
O 1) @ (0, 1, 1)
O 2) 6 (0, 2, 2)
O 3) © (2, 1.5, 1.5)
O 4) @ none of a-c

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