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A small open economy is described by the following equations: 0 = 50+0.75(YT) I = 20020r NX : 200505 M/P = Y40r G : 200
A small open economy is described by the following equations: 0 = 50+0.75(YT) I = 20020r NX : 200505 M/P = Y40r G : 200 T = 200 M : 3000 P = 3 5 ,1 1 | 1. Derive and graph theIS* and Lil/1* curves. 2. Calculate the equilibrium exchange rate, level of income, and net exports. 3. Assume a oating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find. 4. Now assume a xed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government increases its spending by 50. Use a graph to explain what you find
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