1. 6. (Appendix 13.B )

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a. For the economy described in Numerical Problem 4, find the values of all the parameters of Eqs. (13.B.1) ,

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(13.B.2) , and (13.B.3) . Use Eqs. (13.B.8) and

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(13.B.9) to derive the open-economy IS curve for this

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economy.

b. Derive the LM curve for this economy.

c. Find output, the real interest rate, and the price level when the economy is in general equilibrium.

d. Derive the AD curve for this economy. Suppose that net exports increase by 62 at any given level of domestic output and the domestic interest rate. How is the AD curve affected?

e. Find the effect of the increase in net exports on output in this economy, assuming that the price level is fixed at the general equilibrium value you found in part ( ). (Hint:

c This assumption is equivalent to assuming that the SRAS curve is horizontal.)