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 isnominal interest rate. Government spending G22-4E+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.20, tax Tr = 10, export Ex = 6E +10, import Im%3DFind BP curve, if the economy is initially in the internal and external equilibrium. Write an equation for BP withoutspaces and % signs

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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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 is nominal interest rate. Government spending G = 20, tax Tx = 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). 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. Suppose that the nominal exchange rate is fixed. The government has increased government spending by 10. What is the level of the exchange rate in the new external and internal equilibrium?
Because of the increased global unrest, citizens in a small open economy are no longer travelling abroad for their holiday. As a consequence, in the long term the net exports of that small open economy will _____ a) increase because the national savings increased as well b) be unchanged because only the demand for net exports has increased c) fall because the national savings fell as well d) be unchanged because only the demand for net exports has decreased
. The government has proposed Rs1,289 billion for the defence budget for the year 2020-21, 5.1% more compared to last year’s revised defence estimates of Rs1,227 billion for the year 2019-20. If Government cut defence Budget, what happens to saving, investment, the trade balance, the interest rate, inflation rate and the exchange rate? And similarly, Government decreases the interest rate due to COVID-19 so explain what impact on consumption, investment and interest rate. Justify the answer with your own word and examples.
1 1 1. Assume that a country's production function is Y = K2L2. Assume there is no population growth or technological change What is labor productivity computed from the per-worker production function? Is this value the same as labor productivity computed from the original production function а. b. Assume that 10 percent of capital depreciates each year. What gross saving rate is necessary to make the given capital-labor ratio the steady-state capital-labor ratio? (Hint: In a steady state with no population growth or technological change, the saving rate multiplied by per-worker output must equal the depreciation rate multiplied by the capital-labor ratio.)
A large open economy has desired national saving of Sd = 1200 + 1000 rw, and desired national investment of Id = 1000 - 500 rw. The foreign economy has desired national saving of Sdfor = 1300 + 1000 rw, and desired national investment of Idfor= 1800 - 500 rw. The equilibrium world real interest rate equals a. 0.05. b. 0.10. c. 0.15. d. 0.20
Saving-Investment Diagram Real Interest Rate, r(percent Saving Curve Investment Curve DE F GH Desired Saving and Investment (in billions of dollars) Based on the Saving-Investment Diagram, if the world real interest rate is indicated by C, then the difference between values H and D measures the net capital outflow the difference between values H and F measures the trade deficit the difference between values H and D measures the trade deficit the domestic real interest rate is indicated by B none of the above
6.6) Which of the following statements about the open-economy IS curve is correct (a) It is steeper than the closed-economy IS curve because net export depends posi- tively on domestic income. (b) It would shift upward when the domestic government relaxes its import quotas. (c) All of the above. (d) None of the above.
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…
Suppose that the government decides to cut spending. In a three graphs diagram, show theimpact of this policy on real interest rate, national saving, investment, net capital outflows,demand for currency (NX), and supply of currency? Will the currency appreciate ordepreciate?
Other things equal, when the government runs a large budget deficit, it _____ national saving and thereby _____ capital formation and productivity growth. a) increase;increase b)decreases;decreases c)increase;decreases d;decreases;increases
National saving is equal to Y-T-C. Oa. True Ob. False

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