instructions: tackle question b only A. Given that in an economy, Given that in an economy, C = 102+0.7Y, I=150-100r, MS =300, Mt = 0.4Y, and Mz=125-200r where, Y= income, C= consumption, I= investment, MS= money supply, Mt= transactional-precautionary money demand, Mz= speculative money demand and r= interest rate. Calculate; 1. The equilibrium level of income and interest rate in this economy. 2. The level of C, I, Mt, and Mz when the economy is in equilibrium. B. Now, assuming the economy is open with government (G) participation and external trade which is summarized as follows; export(X)= 100-0.10Y, import(M)=50, G=100, Taxes(T)= 100 and C, I, MS, Mt, and Mz the same as defined in (a) above. Calculate; i. The equilibrium income and interest rate in this new economy. ii. The level of C, I, Mt, and Mz when the economy is in equilibrium iii. What exchange rate policy should government implement in (iii) to enhance income and why?
instructions: tackle question b only
A. Given that in an economy, Given that in an economy, C = 102+0.7Y, I=150-100r, MS =300, Mt = 0.4Y, and Mz=125-200r where, Y= income, C= consumption, I= investment, MS= money supply, Mt= transactional-precautionary money demand, Mz= speculative money demand and r= interest rate. Calculate;
1. The equilibrium level of income and interest rate in this economy.
2. The level of C, I, Mt, and Mz when the economy is in equilibrium.
B. Now, assuming the economy is open with government (G) participation and external trade which is summarized as follows; export(X)= 100-0.10Y, import(M)=50, G=100, Taxes(T)= 100 and C, I, MS, Mt, and Mz the same as defined in (a) above. Calculate;
i. The equilibrium income and interest rate in this new economy.
ii. The level of C, I, Mt, and Mz when the economy is in equilibrium
iii. What exchange rate policy should government implement in (iii) to enhance income and why?
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