Consider an economy called Xanadu for which desired aggregate consumption depends on income, Y. and the real interest rate, r, according to Cd =100+0.7Y - 200r. Xanadu's GDP is Y = 1000 and government spending on goods and services is G=180. Xanadu's desired future capital stock is given by K* = 140 - 100uc where luCdenotes the user-cost of capital. The price of capital is PK =2, the physical depreciation rate is d =0.1 and the existing capital stock is K0= 50. Trapital stock between any period t and the following period t+1 evolves accordng to Kt+1 = It+(1-d)Kt where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero. Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal to A) -16 B) -51 C) -6 D) -8
Consider an economy called Xanadu for which desired aggregate consumption
depends on income, Y. and the real interest rate, r, according to
Cd =100+0.7Y - 200r.
Xanadu's
K* = 140 - 100uc
where luCdenotes the user-cost of capital. The price of capital is PK =2, the
physical
Kt+1 = It+(1-d)Kt
where It the level of investment. Assume throughout that net factor payments from abroad (NFP) is equal to zero.
Suppose instead that Xanadu is a small open economy facing a world interest rate of 1%. It follows that Xanadu's current account position is equal to
A) -16
B) -51
C) -6
D) -8
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