3. Consider the following classical economy: Desired consumption Desired investment Government purchases Net exports Real exchange rate Full-employment output C=300+0.5Y-200r -200-300r G=100 NX-150-0.1Y-0.5e e=20+600r Y = 900 In this economy, the real interest rate does not devi- ate from the foreign interest rate. a. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, invest- ment, and net exports? b. Now, suppose that full-employment output increases to 940. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports?

3. Consider the following classical economy: Desired consumption Desired investment Government purchases Net exports Real exchange rate Full-employment output C=300+0.5Y-200r -200-300r G=100 NX-150-0.1Y-0.5e e=20+600r Y = 900 In this economy, the real interest rate does not devi- ate from the foreign interest rate. a. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, invest- ment, and net exports? b. Now, suppose that full-employment output increases to 940. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question: A- Turkey has a flexible exchange rate regime. Discuss in detail what the effects of an expansionary fiscal policy would be on output levels under this regime.How do you think the effects of such a policy would differ under a fixed exchange rate regime? B- Turkey has a flexible exchange rate regime. Assuming perfect capital mobility, do you think it is possible to control the interest rate and the exchange rate at the same time? Please discuss in detail and explain why or why not.
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