Q-2: part B Consider a small open economy described by the following equations: Y = C + I + G + NX, Y = 5,000, G = 1000, T = 1000, C = 250 + 0.75(Y – T) I = 1000 - 50r, NX = 500 - 500 ε , r = r* = 5, where, ε is the real exchange rate and r* is the world interest rate. b. Suppose now that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Q-2: part B Consider a small open economy described by the following equations: Y = C + I + G + NX, Y = 5,000, G = 1000, T = 1000, C = 250 + 0.75(Y – T) I = 1000 - 50r, NX = 500 - 500 ε , r = r* = 5, where, ε is the real exchange rate and r* is the world interest rate. b. Suppose now that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: A Macroeconomic Theory Of The Open Economy

Section14.3: How Policies And Events Affect An Open Economy

Problem 3QQ

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