Sunshine is a small open economy described by the following long-run classical equations where   Y is the economy's real GDP, T-taxes, G-government spending, NX-net exports, l-investment,   C-consumption, r-domestic interest rates, r* - world interest rates.   Y = 4000   G = 1250   T = 1000   C = 250 + 2/3 (Y-T)   I = 450 - 25r   NX = 1250 - 175epsilon   r =r^ * =4   a) Required: Select the appropriate answer that represent [i] investment, [ii] national   savings, [iii] equilibrium exchange rate and [iv] trade balance. b) Suppose the government of sunshine cut its spending to 2,000. Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium   exchange rate and [iv] trade balance.   c) Now suppose the world interest rate falls from 8 to 3 percent, (G is again 2000). Required: Select the appropriate answer that represent [i] private savings, [ii] public savings, [ii] national savings, [iv] investment, [v] trade balance and [vi] equilibrium exchange rate

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Sunshine is a small open economy described by the following long-run classical equations where

 

Y is the economy's real GDP, T-taxes, G-government spending, NX-net exports, l-investment,

 

C-consumption, r-domestic interest rates, r* - world interest rates.

 

Y = 4000

 

G = 1250

 

T = 1000

 

C = 250 + 2/3 (Y-T)

 

I = 450 - 25r

 

NX = 1250 - 175epsilon

 

r =r^ * =4

 

a) Required: Select the appropriate answer that represent [i] investment, [ii] national

 

savings, [iii] equilibrium exchange rate and [iv] trade balance. b) Suppose the government of sunshine cut its spending to 2,000. Required: Select the appropriate answer that represent [i] investment, [ii] national savings, [iii] equilibrium

 

exchange rate and [iv] trade balance.

 

c) Now suppose the world interest rate falls from 8 to 3 percent, (G is again 2000). Required: Select the appropriate answer that represent [i] private savings, [ii] public savings, [ii] national savings, [iv] investment, [v] trade balance and [vi] equilibrium exchange rate

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