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1. Open economy model - 2 large countries A and B A's economy is characterized by the following equations. C = 30 + .8(YT) 1:20
1. Open economy model - 2 large countries A and B A's economy is characterized by the following equations. C = 30 + .8(YT) 1:20 G=20 T=20 X=10+.2Y* IM=10+.2Y B's economy is symmetrical (replace the variables without star by variables with stars and vice-versa) Set up the equilibrium relation for each country in the YY* space i.e. Y = f(Y*) as equation 1 and Y* = f'(Y) as equation 2 Y: _(1) Y*=(2) Solve the system of equations to derive the joint equilibrium values of Y and Y* Show the 2 relations (1) and (2) on the graph below and report the joint equilibrium show the values of the intercepts and slopes
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