Consider an open economy flexible exchange rate IS-LM model with consumption investment and net export functions: C = 550 +0.5(Y – T) I= 500 1000i NX = 350-1000E - 0.3Y Suppose that the interest parity condition is given as: E = - 1+i 1+i* A Ēe where the expected future exchange rate is fixed at = 1.05 and the foreign interest rate is fixed at i* = 5%. Assume that G = T = 0. Let the real money supply be M³/P = 380 and the real money demand be given by:

Consider an open economy flexible exchange rate IS-LM model with consumption investment and net export functions: C = 550 +0.5(Y – T) I= 500 1000i NX = 350-1000E - 0.3Y Suppose that the interest parity condition is given as: E = - 1+i 1+i* A Ēe where the expected future exchange rate is fixed at = 1.05 and the foreign interest rate is fixed at i* = 5%. Assume that G = T = 0. Let the real money supply be M³/P = 380 and the real money demand be given by:

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

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