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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![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
Id=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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fae2d9684-12b8-4882-8709-1c12636b95b3%2F35bb8cc3-d1ab-4149-be30-8d8ddac276ed%2Fs67ecnt_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
Id=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?
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