Question 5. Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I= 400 – 20r, where r is the real interest rate in percent, and the world interest rate is 10 percent. a. If government spending rises by 100, does investment change? What is the level of investment after the change? Explain your answer. b. Does the trade balance change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. c. Does net capital outflow change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. d. Use the long-run model of a small open economy in chapter 5 (the model that shows how exchange rate is determined) to illustrate graphically the impact of increasing the government spending on the exchange rate and the trade balance.

Question 5. Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I= 400 – 20r, where r is the real interest rate in percent, and the world interest rate is 10 percent. a. If government spending rises by 100, does investment change? What is the level of investment after the change? Explain your answer. b. Does the trade balance change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. c. Does net capital outflow change if G rises by 100? If it changes, does it increase or decrease, and by how much? Explain your answer. d. Use the long-run model of a small open economy in chapter 5 (the model that shows how exchange rate is determined) to illustrate graphically the impact of increasing the government spending on the exchange rate and the trade balance.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that consumption is $2,800, investment is $500, and government spending is $600. The economy is closed so there are no net exports. Taxes are $450. Based on this information: National saving is $ Private saving is $ Government (public) saving is $ Enter whole numbers. « Previous Next ASUS 15 8
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The question is based on open economy Macroeconomics (photo attached).
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Please do the work handwritten if you can and include the names of the formulas used and any other rules that need to be followed when solving these problems.
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Not hand written solutions please
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