An open economy with absolute mobility of capital is described as follows: consumption function is given as C =50 + 0, 8(Y T), where Y is output, andT is net taxes. Investment function is given as I = 20–10i, where I isnominal interest rate. Government spending G = 20, taxTr = 10, export Ex = 6E+ 10, import Im=22-4E+0, 3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). Forone unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M /P=50. Thedemand for real money is described by the following function: L(Y, i) = 0, 5Y-10i.Find IS curve in the form Y=a-bi+cE, where a,b,c are constants. Type in the answer these constants with spacesand commas between them, that is: a, b, c.

To find IS curve, we use the following formula Y = C + I + G + Ex - Im

Answered: An open economy with absolute mobility…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Graphs and questions in images. Thank you!
1) Consider a large open economy that engages in a fiscal contraction. In response to this policy change, what will happen to (a) national savings (b) the real rate of interest (c) net capital flows (d) the real exchange rate and (e) net exports?
Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate National Saving Domestic Investment Net Capital Outflow (Percent) (Billions of dollars) (Billions of dollars) (Billions of dollars) 7 60 25 -10 6 55 30 -5 5 50 35 0 4 45 40 5 3 40 45 10 2 35 50 15 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. On the following graph, plot the relationship between the real…
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An open economy with absolute mobility of capital is described as follows: consumption function is given as C = 50 +0, 8(Y - T), where Y is output, and T is net taxes, Investment function is given as I = 20-10i, where I is nominal interest rate. Government spending G 22-4E+0, 3Y where E - nominal exchange rate (price of foreign currency in terms of domestic currency). For one unit of foreign currency, you can get 3 units of domestic currency. The real money supply is M* /P= 50. The demand for real money is described by the following function: L(Y,i) = 0, 5Y-10i. 20, tax Tr = 10, export Ex = 6E +10, import Im %3D Find BP curve, if the economy is initially in the internal and external equilibrium. Write an equation for BP without spaces and % signs

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