(6) C=₂Y²+1^*) + c₂(Fot¹ / P²)where 00.The balance sheet of commercial banks is(7) L=D+LºWhere L = Pº denotes loans to firms, and L" borrowing from the central bankThe interest rate on domestic deposits is(8) P=PWhere I is the cost of borrowing from the central bank, or the refinance rate.The interest rate on loans is(9) F=F+eWhere is a premium, defined as(10) e (P Ko-Lo)Where Lis beginning-of-period loans and esoThe equilibrium condition of the market for domestic goods is(11) X(z)=(1-deltalC+1+G,Where G is government spending, X exports, z = E/ (P) the real exchange rate (defined such that anincrease is a depreciation), X=gX/gz> 0 and 0 Consider a small open economy producing a good which is an imperfect substitute for a foreign good.There are five categories of agents: firms, households, commercial banks, the central bank, and thegovernment. The world price of the foreign good is taken as exogenous and normalized to unity. Thenominal exchange rate, E, is flexible.The supply of the domestic good is given by(1) ys* y* (po)*Where Pº is the price of the domestic good and Y³=dY²³ /d PD > 0Investment, I, is financed by bank loans and is defined as(2) 1=()Where is the loan rate and I' <0.Households hold three categories of assets: cash (which bears no interest), deposits with domesticbanks, and foreign-currency deposits abroad. Assets are imperfect substitutes. Household financialwealth, F^ H is defined as:(3) P¹=M+D+E.D"Where M is cash holdings, and D (respectively, D") domestic (respectively, foreign) deposits.The demand for deposits is(4) M/D=m,Where IP is the interest rate on domestic deposits, and m> 0 is a constant coefficient.The demand for foreign deposits depends on the domestic and foreign interest rates:(5) ED* /F" =h(*).Where Fo" is the predetermined component of household financial wealth, Esthe nominal exchangerate at the beginning of the period, the interest rate on domestic deposits, į" the interest rate onforeign deposits, and he is a share function with partial derivativesah/ai<<0, ah/ai"* = hi*>0.Household consumption spending, C, depends on factor income, interest rates, and wealth:

Monetary policy is the arrangement of moves made by a country's central bank to control the money…

(6) C=C₂Y³²-(+i^*) + c(Fut/P) where 00. The balance sheet of commercial banks is (7) L=D+Lº Where L = P1 denotes loans to firms, and Lº borrowing from the central bank The interest rate on domestic deposits is (8) P=F Where I is the cost of borrowing from the central bank, or the refinance rate. The interest rate on loans is (9) F=F+e Where is a premium, defined as (10)ee (P Ko-Lo) Where Le is beginning-of-period loans and so The equilibrium condition of the market for domestic goods is (11)Y-X(z)=(1-delta)C+1+G, Where G is government spending, X exports, z = E/ (P) the real exchange rate (defined such that an increase is a depreciation), X = X/>0 and 0

(6) C=C₂Y³²-(+i^*) + c(Fut/P) where 00. The balance sheet of commercial banks is (7) L=D+Lº Where L = P1 denotes loans to firms, and Lº borrowing from the central bank The interest rate on domestic deposits is (8) P=F Where I is the cost of borrowing from the central bank, or the refinance rate. The interest rate on loans is (9) F=F+e Where is a premium, defined as (10)ee (P Ko-Lo) Where Le is beginning-of-period loans and so The equilibrium condition of the market for domestic goods is (11)Y-X(z)=(1-delta)C+1+G, Where G is government spending, X exports, z = E/ (P) the real exchange rate (defined such that an increase is a depreciation), X = X/>0 and 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a small open economy producing a good which is an imperfect substitute for a foreign good. There are five categories of agents: firms, households, commercial banks, the central bank, and the government. The world price of the foreign good is taken as exogenous and normalized to unity. The nominal exchange rate, E, is flexible. The supply of the domestic good is given by YS * =YS * (PD) * Where PD is the price of the domestic good and YS = d YS’ /d PD > 0 Investment, I, is financed by bank loans and is defined as 1 = I(iL) Where iL is the loan rate and I’ < 0 Households hold three categories of assets: cash (which bears no interest), deposits with domestic banks, and foreign-currency deposits abroad. Assets are imperfect substitutes. Household financial wealth, F ^ H is defined as: FH = M+D+E.D* Where M is cash holdings, and D (respectively, D*) domestic (respectively, foreign) deposits. The demand for deposits is M / D = m, Where ID is the interest rate on…
We are looking at gas trade between Russia and the EU, assuming that both regions have upward-sloping supply curves and downward-sloping demand curves in a diagram with quantity on the horizontal axis and price on the vertical axis. To simplify the situation, we also assume that the exchange rate is constant and equal to 1 (so we do not need to differentiate between prices in Russia and the EU). In autarky equilibrium, there is a higher price in the EU than in Russia. Unless otherwise specified, there are no trade costs, and the capacity of the pipelines is not binding (i.e., with free trade, prices are initially the same in the EU and Russia). Without Nord Stream 1/2 in operation, the capacity of gas deliveries to Europe is much lower (but not zero). What happens (with the welfare of the two countries and consumer/producer surplus) if the EU stops importing Russian gas?
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We look at the trade of gas between Russia and the EU and assumes that both areas' supply curves slope upwards and their demand curves slope downwards in the diagram with quantity on the horizontal axis and price on the vertical axis. To make the situation simple, we also initially assume that the exchange rate is constant, and it is 1 (so that we do not need to differentiate between the prices i Russia and the EU). In the autarky equilibria, prices are higher in the EU than in Russia. Unless otherwise specified, there are no trading costs, and the capacity of the pipelines is not binding (ie with free trade the prices are basically the same in the EU and Russia). (a) Draw and show the supply of export goods and the demand for import goods in relation to the two areas' supply and demand curves (three islands next to each other). (b) What happens (to welfare in the two countries and consumer surplus/producer surplus) if the EU stops importing Russian gas? (c) Without Nord Stream 1/2 in…
Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $25. Suppose that the world price of meekers is $23. Assume that Meekertown is too small to influence the world price of meekers once it enters the international market. If Meekertown allows free trade, then it will ______ (export/import) meekers. Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false. Statement True False Meekertownian consumers are better off under free trade than they were before. Meekertownian producers were better off without free trade than they are with it. True or False: When a country is too small to affect the world price, allowing free trade will sometimes decrease total surplus in that country, regardless of whether it imports or exports as a result of international trade.…
Consider the Heckscher-Ohlin model of international trade. There are two goods, shoes and computers, produced with labour and capital. The production process features diminishing returns to each factor of production. The production of shoes is labour-intensive and the production of computers is capital-intensive. There are two countries, the UK and India. Denote the labour force and the capital stock of the UK and India by LUK and KUK, and LIN and KIN , respectively. The UK is capital-abundant and India is labour abundant. Describe India’s factor markets: on a graph with the labour-capital ratio (L/K) on the horizontal axis and the wage-rental ratio (W/R) on the vertical axis, depict India’s no-trade economy-wide relative demand (RD) and relative supply (RS) of labour-to-capital. Show the no-trade equilibrium wage-rental ratio.