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Assume that an open economy with a floating exchange rate is described by the equations: C = 0.5(Y-T)

Assume that an open economy with a floating exchange rate is described by the equations: C = 0.5(Y-T)

Elementary Geometry For College Students, 7e
Elementary Geometry For College Students, 7e
7th Edition
ISBN:9781337614085
Author:Alexander, Daniel C.; Koeberlein, Geralyn M.
Publisher:Alexander, Daniel C.; Koeberlein, Geralyn M.
ChapterP: Preliminary Concepts
SectionP.CT: Test
Problem 1CT
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Assume that an open economy with a floating exchange rate is described by the equations:
C = 0.5(Y-T)
T= 1000
I= 1500 -250r
G= 1500
NX= 1000 – 250e
(M/P)
d = 0.5Y – 500r
M= 1000
S-I= 500 – 250r
P= 2
r* = 1

a. Solve for NX and e. 
b. Using the information from parts a. to be part d. above, graphically illustrate on a
clearly labelled diagram, the short-run impact of contractionary fiscal policy on the
exchange rate and level of output in this small open economy.
c. Assuming that the economy adopted a fixed exchange rate system, illustrate on a
clearly labelled diagram, the impact of contractionary fiscal policy. 

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