a small open economy is described by the following equations: C = 50 + .75(Y-T) I = 200 - 20r NX = 200 -50e M/P = Y -40r G = 200 T = 200 M = 3000 P = 3 r* = 5 a. Derive and graph the IS* and LM* curves. b. Calculate the equilibrium exchange rate, level of income, and net exports
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a small open economy is described by the following equations:
C = 50 + .75(Y-T)
I = 200 - 20r
NX = 200 -50e
M/P = Y -40r
G = 200
T = 200
M = 3000
P = 3
r* = 5
a. Derive and graph the IS* and LM*
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, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find.
d. Now assume fixed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports and the money supply if the government increases spending by 50. Use graph to illustrate what you find.
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