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

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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