A small open economy is described by the following equations: C = 60 +.75(Y -T) I = 150 - 20r NX = 150 – 50e M/P =Y - 40r G = 1500 M = 2000 P = 2 R* = 5 Assume a balanced budget. a. Derive and graph the IS* and LM* curves. 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, and net exports if the government increases its spending by 50. Use a graph to explain what you find.

A small open economy is described by the following equations:C = 60 +.75(Y - T)I = 150 - 20rNX = 150 – 50eM/P = Y - 40rG = 1500M = 2000P = 2R* = 5Assume a balanced budget.a. Derive and graph the IS* and LM* curves.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 ofincome, and net exports if the government increases its spending by 50. Use a graph to explainwhat you find.

The following equations describe a small open-economy: C = 10 + 0.5Y I = 160 - 50r NX = 80 - 0.1Y - e e = 50 - 0.1Y + B (r-r*) G= 10 where C is consumption, I is investment, Y is domestic output, r is the domestic real interest rate, NX is net exports, e is the real exchange rate, G is government spending and r* is the foreign real interest rate. (a) Suppose that ß is fairly small, ß = 5, full employment output is Y = 400 and r* = 0.1. What is the equilibrium value of the domestic interest rate, r? (b) Consider instead that ß is fairly large, B = 1000, where again Y = 400 and r* = 0.1. What is the equilibrium value of the domestic interest rate? (c) What happens to r as ß increases? Does r converge to r* as ß approaches infinity? What type of small open economy model does this resemble?

A small open economy is described by the following equations: C = 50 + 0.75(Y – T) |= 200 -20r NX = 200 - 50e M/P = Y - 40r G = 200 T= 200 M = 3,000 P= 3 r* = 5 The equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming a floating exchange rate, the equilibrium exchange rate is (please enter your answer in numerical form with no decimal space, comma, or percentage), the equilibrium income is (please enter your answer in numerical form with no decimal space, comma, or dollar sign), and net exports is (please enter your answer in numerical form with no decimal space, comma, or dollar sign). If the government increases its spending by 50, assuming…