Suppose desired consumption C", investment, /", net exports, NX, and the demand for monetary assets, M", for the small open economy of Swedeway can be represented as Cd = 100 + 0.6Y %3D Id = 80 – 400r Md = 0.5Y – 0.3(r + n°) + z NX = 200 – 0.3Y – 10e where Y denotes GDP, r'denotes the domestic real interest rate,eis the real exchange rate andPis the domestic price level. Swedeway operates a flexible nominal exchange rate regime. Government spending is given byG = 100, the money supply isM = 100and expected inflation is T° rFor = 0.03and the foreign price level isPFor 0.02. The foreign real interest rate is 1. The full employment level of output is Y 500. %3D In the short run, Swedeway's output and real exchange rate are now given by Y = 493.33; e = 12.4 %3D %3D Y = 495.00; e = 26.6 Y = 496.67; e = 7.83. Y = 496.00; e = 12.1
Suppose desired consumption C", investment, /", net exports, NX, and the demand for monetary assets, M", for the small open economy of Swedeway can be represented as Cd = 100 + 0.6Y %3D Id = 80 – 400r Md = 0.5Y – 0.3(r + n°) + z NX = 200 – 0.3Y – 10e where Y denotes GDP, r'denotes the domestic real interest rate,eis the real exchange rate andPis the domestic price level. Swedeway operates a flexible nominal exchange rate regime. Government spending is given byG = 100, the money supply isM = 100and expected inflation is T° rFor = 0.03and the foreign price level isPFor 0.02. The foreign real interest rate is 1. The full employment level of output is Y 500. %3D In the short run, Swedeway's output and real exchange rate are now given by Y = 493.33; e = 12.4 %3D %3D Y = 495.00; e = 26.6 Y = 496.67; e = 7.83. Y = 496.00; e = 12.1
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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