12. Discuss the relative advantages and disadvantages of flexible exchange rates, fixed exchange rates, and a currency union.

a. What are the general equilibrium (that is, long-run)
values of output, the real interest rate, consumption, investment, net exports, and the price level?

b. Starting from full employment, government purchases are increased by 62 to 214. What are the effects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run?

c. With government purchases at their initial value of 152, net exports increase by 62 at any income and real interest rate so that NX = 212 - 0.08Y - 500r.
What are the effects of this change on output, the real interest rate, consumption, investment, net exports, and the price level in the short run? In the long run? Compare your answer to that for part!(b).

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Desired investment Desired consumption Cd=200+0.6 (Y-T)-300r Id=400-300r Taxes T = 30+ 0.2Y Government purchases G = 152 Net exports Money demand Money supply NX 150 0.08Y - 500r L = 0.5Y - 300r M = 924 Full-employment output = 1000