In the above equations, covid stands for the extent of the spread of the covid-19 pandemic in the population, which takes different values as specified below. In addition, Y stands for output, YD for disposable income, Z planned expenditure, N labour, Nd labour demand, Ns labour supply, W nominal wage, P price level, C consumption, I investment, NX net exports, G government expenditure, T net taxes, L real money demand, M nominal money supply, e nominal exchange rate, i nominal interest rate, and if foreign nominal interest rate. Assume that, in all cases, the short side of the market determines outcomes. Using the above model and rounding to 3 decimal places, answer the following questions: Consider the following model of a small open macroeconomy during a pandemic:Production and Labour Market:Y = 50N – ,(1)Production functionNa = 50 – 4,N, = 0.25,(2)Labour demand(3)Labour supplyNa = N, = N,(4)Labour market equilibriumGoods Market:Z = C+I+G+ NX,(5) Planned aggregate expenditureC = 100 + (0.5 – covid) Yp,(6)Consumption functionI = 50 – 20covid + 0.5Y – 200i,(7)Planned investmentG = 25,(8)Government expenditureYp = Y – T,(9)Disposable incomeT = 20 + 0.25Y – 20covid,(10)Tax functionNX = 10 – 0.25Y +.(11)Net Exports functionY = Z,(12)Eqilibrium ConditionMoney Market:L = 75 + 20covid + 0.25Y100i, (13)Money demand(14)Money supplyL = 4.(15)Money market equilibriumBalance of Payments:i = i; == 0.06.(16)BP=0 locus (a) Let covid = 0. If the price level P and the nominal wage W are flexible, but theexchange rate is fixed at e = ē = 2, what is the equilibrium value of Y*?(b) Let covid = 0. If the exchange rate remains fixed at e =ē = 2, but now the price levelPis also fixed at P = P = 1, what is the equilibrium value of Y"?(c) Let covid = 0. If the price level P remains fixed at P = P =1, but the exchange rate eis now flexible and the money supply is fixed at M = M = 175, what is the equilibriumvalue of Y*?(d) Let covid = 0.25, and replace equation 3 (labour supply) with N, = 0.5, due to apermanent decrease in labour disutility as a result of remote working. Calculate howyour answers to the above subquestions (a), (b) and (c) change.(e) Explain briefly the effect of the pandemic and the implicit government response onthis model economy.

Answered: (a) Let covid = 0. If the price level P…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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In the above equations, covid stands for the extent of the spread of the covid-19 pandemic in the population, which takes different values as specified below. In addition, Y stands for output, Y_Dfor disposable income, Z planned expenditure, N labour, N_dlabour demand, Ns labour supply, W nominal wage, P price level, C consumption, I investment, NX net exports, G government expenditure, T net taxes, L real money demand, M nominal money supply, e nominal exchange rate, i nominal interest rate, and i_f foreign nominal interest rate. Assume that, in all cases, the short side of the market determines outcomes. Using the above model and rounding to 3 decimal places, answer the following questions:

Consider the following model of a small open macroeconomy during a pandemic:
Production and Labour Market:
Y = 50N – ,
(1)
Production function
Na = 50 – 4,
N, = 0.25,
(2)
Labour demand
(3)
Labour supply
Na = N, = N,
(4)
Labour market equilibrium
Goods Market:
Z = C+I+G+ NX,
(5) Planned aggregate expenditure
C = 100 + (0.5 – covid) Yp,
(6)
Consumption function
I = 50 – 20covid + 0.5Y – 200i,
(7)
Planned investment
G = 25,
(8)
Government expenditure
Yp = Y – T,
(9)
Disposable income
T = 20 + 0.25Y – 20covid,
(10)
Tax function
NX = 10 – 0.25Y +.
(11)
Net Exports function
Y = Z,
(12)
Eqilibrium Condition
Money Market:
L = 75 + 20covid + 0.25Y
100i, (13)
Money demand
(14)
Money supply
L = 4.
(15)
Money market equilibrium
Balance of Payments:
i = i; =
= 0.06.
(16)
BP=0 locus

(a) Let covid = 0. If the price level P and the nominal wage W are flexible, but the
exchange rate is fixed at e = ē = 2, what is the equilibrium value of Y*?
(b) Let covid = 0. If the exchange rate remains fixed at e =ē = 2, but now the price level
Pis also fixed at P = P = 1, what is the equilibrium value of Y"?
(c) Let covid = 0. If the price level P remains fixed at P = P =1, but the exchange rate e
is now flexible and the money supply is fixed at M = M = 175, what is the equilibrium
value of Y*?
(d) Let covid = 0.25, and replace equation 3 (labour supply) with N, = 0.5, due to a
permanent decrease in labour disutility as a result of remote working. Calculate how
your answers to the above subquestions (a), (b) and (c) change.
(e) Explain briefly the effect of the pandemic and the implicit government response on
this model economy.

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