EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 13, Problem 2AP
To determine
Reason for appreciation of U.S. real exchange rate and drop in Net exports and impact on financial flows.
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As a result of entering the world economy, Neverland experiences economic boom and its GDP goes up to y=13250: The functions that describe consumption and
investment are still the same: Cd(,) = 5000 – 1000r+0.25Y and 1d (r) = 500 – 1800r +0.2Y. The government wants to take advantage of growth and increases
its expenditures to: G- 190o. What is Neverland's current account balance?
Note: Type in your answer approximated to two decimal points, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered
incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard will automatically delete it
and you should not do anything about it.
The Small Open Economy macroeconomic model assumes that GDP is constant. However, the model could be used to
analyze the effects of a one-time increase in GDP as a rightward shift of the supply of loanable funds. What would the
model predict about the real interest rate, net capital outflow, net exports, and the real exchange rate when GDP
increases?
B v E E
Pa... v
...
Consider the open-economy short run model.
Suppose that the sensitivity of investment to
interest rates is b'ib¯i =0.38, and the
sensitivity of net exports to interest rates is
b¯nxb¯nx=0.13. If the foreign interest rate rises
by 2.52 percentage points and the domestic
interest rate rises by 0.22 percentage points,
by how much does short-run output change?
Report your answer in percentage points to 2
decimal places.
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