(A) Government spending rises to 1,250. Compute the investment, trade balance, national savings and the equilibrium exchange rate and illustrate graphically. (B) Suppose that the world interest rate rises from 5 to 10 percent (G is again 1,000). Solve for national saving, investmentm trade balance and the equilibrium exchange rate. Explain what you find compared to part (A) and explain graphically.
(A) Government spending rises to 1,250. Compute the investment, trade balance, national savings and the equilibrium exchange rate and illustrate graphically. (B) Suppose that the world interest rate rises from 5 to 10 percent (G is again 1,000). Solve for national saving, investmentm trade balance and the equilibrium exchange rate. Explain what you find compared to part (A) and explain graphically.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter23: The International Trade And Capital Flows
Section: Chapter Questions
Problem 46P: Imagine that the economy of Germany finds itself in the following situation: the government budget...
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(A) Government spending rises to 1,250. Compute the investment, trade balance, national savings and the equilibrium exchange rate and illustrate graphically.
(B) Suppose that the world interest rate rises from 5 to 10 percent (G is again 1,000). Solve for national saving, investmentm trade balance and the equilibrium exchange rate. Explain what you find compared to part (A) and explain graphically.
Transcribed Image Text:Question
Q-2:
В.
Consider a small open economy described by the following equations:
Y=C +1+ G+ NX,
Y= 5,000,
G= 1000, T= 1000,
C= 250 + 0.75(Y – T)
|= 1000 - 50r,
NX = 500 - 500 ɛ ,
r=r* = 5,
where, ɛ is the real exchange rate and r* is the world interest rate.
a.
In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate.
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