7. Consider the following classical economy:Desired consumption CdDesired investment IdGovernment purchases GNet exports NXReal exchange rate e=300+0.5Y - 200r=200-300r.=100=150 0.1Y 0.5e=20+ 600rFull-employment output Ỹ = 900(a) In this economy, the real interest rate does not deviate from the foreign interest rate.(b) What are the equilibrium values of the real interest rate, the real exchange rate, consump-tion, investment, and net exports?(c) Now, suppose that full-employment output increases to 940. What are the equilibriumvalues of the real interest rate, the real exchange rate, consumption, investment, and netexports?(d) Suppose that full-employment output remains at 940 and that government purchasesincrease to 132. What are the equilibrium values of the real interest rate, the real exchangerate, consumption, investment, and net exports?

The real interest rate is the rate of interest an investor receives after allowing for inflation. It…

What are the equilibrium values of the real interest rate, the real exchange rate, consump- tion, investment, and net exports? O Now, suppose that full-employment output increases to 940. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports? Suppose that full-employment output remains at 940 and that government purchases increase to 132. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports?

What are the equilibrium values of the real interest rate, the real exchange rate, consump- tion, investment, and net exports? O Now, suppose that full-employment output increases to 940. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports? Suppose that full-employment output remains at 940 and that government purchases increase to 132. What are the equilibrium values of the real interest rate, the real exchange rate, consumption, investment, and net exports?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter26: Monetary Policy

Section: Chapter Questions

Problem 3P

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20. When foreign real interest rates rise, the domestic currency ________.a) appreciatesb) depreciatesc) appreciates or depreciates depending on the change in nominal interest ratesd) does not change
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Problems Exercise 1 Suppose a closed economy is represented by the following equations: Z= C+I+G C= co + C1x YD YD = Y-T T=100 I=0.2x Y-5000x i G=150 where Cis private consumption, I is investment, i is the interest rate set by the central bank; G is government spending, Y is income, Ypis disposable income and T represents taxes. Assume that co =250, i=2% (remember 2%=0.02), and c1 = 0.6. а. i. Given the above equations and variables, calculate the equilibrium level of output. ii. What is the multiplier for this economy? b. Now, assume that I is 0.1× Y-5000× i. Also, assume that co, C1, G, i and T remain unchanged: i. What is the new equilibrium level of output? How much does income change as a result of the change in ? What is the multiplier for this economy after the change in ? ii. ii. iv. What is the new level of consumption after the change in ? c. Assuming the same change as in (b), but letting G, i and T vary, which policies can the government do to achieve the same level of…
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