IS-LM in an Open EconomyConsider the same IS-LM model of the previous question but now in an open economy. Assumethat additionally we have thatTB=100E-0.36Y+0.2Y*E=1.2Y = 1,2001. Derive the IS curve.2. Derive the LM curve.3. Determine the equilibrium output Y and interest rate i.4. Find the equilibrium value for the trade balance. Is this economy experiencing a trade balancesurplus or deficit?5. Assume that the uncovered interest parity holds and that the expected nominal exchange rate

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Answered: IS-LM in an Open Economy Consider the…

Exploring Economics

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Chapter26: Monetary Policy

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The question is based on open economy Macroeconomics (photo attached).
1. B. The consumption schedule for an open economy is given as C = 40 + 0.7Y. Assume that planned investment Ig and new exports Nx are independent of the Real GDP and constant, where Ig = 60 and Nx = 20. The equilibrium real output, Y is equal to aggregate expenditures. Calculate the equilibrium level of real GDP for this economy. What happens to the equilibrium Y if Ig changes to 30? What does the new outcome reveal about the size of the multiplier?
Which is not a dynamic of IS-LM Model • it takes some time an output to adjust to the new fiscal and monetary policies • It takes some time for consumption spending to adjust changes in disposable income • It will take time for an investment spending adjust to changes in interest rate • it will take some tome for a policy to change in order to adjust output
An open economy is described by the following system of macroeconomic equations, in which all macroeconomic aggregate are measured in billions of Namibian dollars, N$:Y = C + I + G + X –MC = 160 + 0.6 YdT = 100 + 0.25YX = 80I = 150G = 150M = 22 + 0.25YWhere: Yis domestic incomeYdis private disposable income C is aggregate consumption spending T is government tax revenue I is investment spending X represents exports M represents imports of goods and services. (a) Determine trade balance at equilibrium. (b) Find the multiplier applicable to autonomous tax and interpret it. (c)Use the multiplier applicable to exports, to explain how a 100 billion decline in demand for exports could have affected the economy’s: (i)GDP/ output (ii)Balance of trade (iii)Government budget
In both the classical and the Keynesian model, savings equal investment in a balanced-economy equilibrium. O True O False
Assume that an economy prefers an internal balance (Y = Y) to an external balance (NX = 0). Then the only aim of the economy is to keep the equilibrium output level at the level of potential output (Yf= 1500 units). Suppose that the IS and BP models for this economy are as the following. Please the the attached photo
In the IS-LM model, which market moves the fastest to restore general equilibrium?
Imagine that the U.S. economy finds itself in the followingsituation:agovernmentbudgetdeficitof$100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion.Accordingtothenationalsavingandinvestment identity,whatwillbethecurrentaccountbalance?What willbethecurrentaccountbalanceifinvestmentrisesby $50billion,whilethebudgetdeficitandnationalsavings remain the same?
answer 5.3 & 5.4
Increasing public savings in a closed economy usually leads to: O The aggregate demand is declining O The aggregate demand is going up O The trade balance is deteriorating O Private consumption is declining a lot
stion 21 of 22 > Identify whether each macroeconomic variable is an example of a withdrawal or an injection. Then, determine the value of investment at equilibrium. All values are in billions of dollars. Withdrawal saving = $720 imports = $2520 taxes = $2700 investment at equilibrium: $ 400 Answer Bank Injection government spending = $3600 exports = $1980 Attempt 1 investment = ? billion
21. Suppose that the government wants to raise investment but keep output constant. In the IS-LM model, what policies (or policy combination) will achieve this goal?

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