Consider an economy described by the following equations: Y =C+l+G+NX, Y =5,000, G = 1, 000, T = 1, 000, C =250+0.75(Y -T), I = 1, 000 – 50r, %3D NX = 500 – 500ɛ, r = r* = 5 (a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. (b) Suppose that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 percent to 10 percent. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Consider an economy described by the following equations: Y =C+l+G+NX, Y =5,000, G = 1, 000, T = 1, 000, C =250+0.75(Y -T), I = 1, 000 – 50r, %3D NX = 500 – 500ɛ, r = r* = 5 (a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. (b) Suppose that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 percent to 10 percent. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 14QP

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