Consider an open economy described by a classical model as follows: Consumption: C = 300+ 0.5Y - 200r Investment: I=200-300r Government Expenditure: G = 100 Net Exports: Nx 150 0.1Y- 0.5e Real exchange Rate: e = 20 + 600r Natural rate of output: /bar (Y) = 900 The real interest rate (r) does not deviate from the international real interest rate. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports? Do the results indicate a trade surplus or trade deficit? Suppose that government expenditure increases to 132. a. Numerically solve for the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports. b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this question, and provide an economic intuition. Consider an open economy described by a classical model as follows: Consumption: C = 300+ 0.5Y - 200r Investment: I=200-300r Government Expenditure: G = 100 Net Exports: NX=150-0.1Y-0.5e Real exchange Rate: e = 20 +600r Natural rate of output: = 900 The real interest rate (r) does not deviate from the international real interest rate. 1. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports? 2. Do the results indicate a trade surplus or trade deficit? 3. Suppose that government expenditure increases to 132. a. Numerically solve for the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports. b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this question, and provide an economic intuition.
Consider an open economy described by a classical model as follows: Consumption: C = 300+ 0.5Y - 200r Investment: I=200-300r Government Expenditure: G = 100 Net Exports: Nx 150 0.1Y- 0.5e Real exchange Rate: e = 20 + 600r Natural rate of output: /bar (Y) = 900 The real interest rate (r) does not deviate from the international real interest rate. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports? Do the results indicate a trade surplus or trade deficit? Suppose that government expenditure increases to 132. a. Numerically solve for the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports. b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this question, and provide an economic intuition. Consider an open economy described by a classical model as follows: Consumption: C = 300+ 0.5Y - 200r Investment: I=200-300r Government Expenditure: G = 100 Net Exports: NX=150-0.1Y-0.5e Real exchange Rate: e = 20 +600r Natural rate of output: = 900 The real interest rate (r) does not deviate from the international real interest rate. 1. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports? 2. Do the results indicate a trade surplus or trade deficit? 3. Suppose that government expenditure increases to 132. a. Numerically solve for the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next exports. b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this question, and provide an economic intuition.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Consider an open economy described by a classical model as follows: Consumption: C = 300+ 0.5Y - 200r Investment:
I=200-300r Government Expenditure: G = 100 Net Exports: Nx 150 0.1Y- 0.5e Real exchange Rate: e = 20 + 600r
Natural rate of output: /bar (Y) = 900 The real interest rate (r) does not deviate from the international real interest rate.
What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and next
exports? Do the results indicate a trade surplus or trade deficit? Suppose that government expenditure increases to
132. a. Numerically solve for the equilibrium values of the real interest rate, the real exchange rate, consumption,
investment, and next exports. b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this
question, and provide an economic intuition.
Consider an open economy described by a classical model as follows:
Consumption: C = 300+ 0.5Y - 200r
Investment: I=200-300r
Government Expenditure: G = 100
Net Exports: NX=150-0.1Y-0.5e
Real exchange Rate: e = 20 +600r
Natural rate of output: = 900
The real interest rate (r) does not deviate from the international real interest rate.
1. What are the equilibrium values of the real interest rate, the real exchange rate, consumption,
investment, and next exports?
2. Do the results indicate a trade surplus or trade deficit?
3. Suppose that government expenditure increases to 132.
a. Numerically solve for the equilibrium values of the real interest rate, the real exchange
rate, consumption, investment, and next exports.
b. Graphically compare the real exchange rate and net exports in parts 1 and 2 of this
question, and provide an economic intuition.
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