Consider the open-economy model with flexible prices and fixed output from chapter 6. The components of GDP are: C=100+ 0.75(YT) = 50-9r G = 50 T = 40 NX = 10-25c where Y = F(K, L) = 400. (a) Suppose that € = 1. Calculate public and private savings, net exports, and r✶. (b) Suppose there is an increase in autonomous investment such that the new investment curve is: 1 = 60-9r Demonstrate graphically the effect of this change on savings, investment, the real interest rate, net exports, and the real exchange rate. Your answer should consist of two figures and a brief explanation.

Consider the open-economy model with flexible prices and fixed output from chapter 6. The components of GDP are: C=100+ 0.75(YT) = 50-9r G = 50 T = 40 NX = 10-25c where Y = F(K, L) = 400. (a) Suppose that € = 1. Calculate public and private savings, net exports, and r✶. (b) Suppose there is an increase in autonomous investment such that the new investment curve is: 1 = 60-9r Demonstrate graphically the effect of this change on savings, investment, the real interest rate, net exports, and the real exchange rate. Your answer should consist of two figures and a brief explanation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the open-economy model with flexible prices and fixed output from chapter 6. The components of GDP are:
C = 100+ 0.75(YT) = 50-9r+G = 50 T = 40 NX = 10-25c where Y = F(K, L) = 400. (a) Suppose that
€ = 1. Calculate public and private savings, net exports, and r*. (b) Suppose there is an increase in autonomous
investment such that the new investment curve is: 1 = 60-9r Demonstrate graphically the effect of this change on
savings, investment, the real interest rate, net exports, and the real exchange rate. Your answer should consist of two
figures and a brief explanation.

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