Consider a classical economy. Assume that the GDP of an economy is 9000. Consumption is given by the equation C = 600+(3/4)YD - 40r, where r is the percentage real rate of interest. Investment is given by the equation / = 1200- 120r. Net exports is given by NX = 1500-200€. There is a budget deficit of 500 and government spending is 1500. Finally, suppose the world interest rate is 5. - (i) For this open economy derive all equilibrium values, all savings values, and also describe whether the current and capital accounts are in deficit or surplus.
Consider a classical economy. Assume that the GDP of an economy is 9000. Consumption is given by the equation C = 600+(3/4)YD - 40r, where r is the percentage real rate of interest. Investment is given by the equation / = 1200- 120r. Net exports is given by NX = 1500-200€. There is a budget deficit of 500 and government spending is 1500. Finally, suppose the world interest rate is 5. - (i) For this open economy derive all equilibrium values, all savings values, and also describe whether the current and capital accounts are in deficit or surplus.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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