Consider an economy described by the following equations: Y =C+l+G+NX, Y =5,000, G = 1, 000, T = 1, 000, C =250+0.75(Y -T), I = 1, 000 – 50r, %3D NX = 500 – 500ɛ, r = r* = 5 (a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. (b) Suppose that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 percent to 10 percent. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Consider an economy described by the following equations: Y =C+l+G+NX, Y =5,000, G = 1, 000, T = 1, 000, C =250+0.75(Y -T), I = 1, 000 – 50r, %3D NX = 500 – 500ɛ, r = r* = 5 (a) In this economy, solve for national savings, investment, the trade balance, and the equilibrium exchange rate. (b) Suppose that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. (c) Now suppose that the world interest rate rises from 5 percent to 10 percent. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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