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Assume that the following equations characterize a small open economy: Y= 5,000 C-0.5 (Y - 7) 1-2,000 - 100r NX - 500 - 500E -25 G-1,500 T-1.000. a. Solve these equations for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate. b. Does this economy run a trade surplus or a trade deficit? c. Is this economy a net borrower or a net lender?

Assume that the following equations characterize a small open economy: Y= 5,000 C-0.5 (Y - 7) 1-2,000 - 100r NX - 500 - 500E -25 G-1,500 T-1.000. a. Solve these equations for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate. b. Does this economy run a trade surplus or a trade deficit? c. Is this economy a net borrower or a net lender?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume that the following equations characterize a small open economy: Y= 5,000 C-0.5 (Y - T) 1- 2,000 - 100r NX - 500 - 500E r*- 2.5 G-1,500 T=1,000. a. Solve these equations for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate. b. Does this economy run a trade surplus or a trade deficit? c. Is this economy a net borrower or a net lender? d. If government spending rises by 200, what happens to the real interest rate? Does investment change? e. If government spending rises by 200, does national saving increase or decrease? By how much? f. What happens to the real exchange rate when government spending increases?
Transcribed Image Text:Assume that the following equations characterize a small open economy: Y= 5,000 C-0.5 (Y - T) 1- 2,000 - 100r NX - 500 - 500E r*- 2.5 G-1,500 T=1,000. a. Solve these equations for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate. b. Does this economy run a trade surplus or a trade deficit? c. Is this economy a net borrower or a net lender? d. If government spending rises by 200, what happens to the real interest rate? Does investment change? e. If government spending rises by 200, does national saving increase or decrease? By how much? f. What happens to the real exchange rate when government spending increases?
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