Question
Consider the following Keynesian small openeconomy: Cd = 200 + 0.69Y Id = 80 - 1000r G = 20 NX = 85 - 0.09Y -
Consider the following Keynesian small openeconomy: Cd = 200 + 0.69Y Id = 80 - 1000r G = 20 NX = 85 - 0.09Y - e e = 90 M = 115 L = 0.5Y - 200r Y = 300 In this economy, the real interest rate does not devi ate from the foreign interest rate. a. Assuming this economy is in general equilibrium,what is the value of the interest rate r? b. Assuming fixed nominal exchange rates and afixed domestic price level, what is the effect ondomestic output if the foreign interest rateincreases by 0.05? What is the size of the nominalmoney supply in the new short-run equilibrium?
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