2. A small open economy is described by the following equations: C = 60 +.75(Y - T) I= 150 - 20r NX 150 – 50e %3D MP = Y- 40r G= 1500 M= 2000 P = 2 R* = 5 Assume a balanced budget. a. Derive and graph the IS* and LM* curves. b. Calculate the equilibrium exchange rate, level of income, and net exports. c. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, and net exports if the government increases its spending by 50. Use a graph to explain what you find.

2. A small open economy is described by the following equations: C = 60 +.75(Y - T) I= 150 - 20r NX 150 – 50e %3D MP = Y- 40r G= 1500 M= 2000 P = 2 R* = 5 Assume a balanced budget. a. Derive and graph the IS* and LM* curves. b. Calculate the equilibrium exchange rate, level of income, and net exports. c. Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, and net exports if the government increases its spending by 50. Use a graph to explain what you find.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 45P: Table 23.7 provides some hypothetical data on macroeconomic accounts for three countries represented...

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A small open economy is described by the following equations: C = 50 + 0.75(Y – T) |= 200 -20r NX = 200 - 50e M/P = Y - 40r G = 200 T= 200 M = 3,000 P= 3 r* = 5 The equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming a floating exchange rate, the equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming…
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