Question
Consider the open economy IS/LM model with the following functions: C = 0.5(Y ?T), I = 1500 ? 250r, NX = 1000 ? 250e, L(Y,
Consider the open economy IS/LM model with the following functions:
C = 0.5(Y ?T), I = 1500 ? 250r, NX = 1000 ? 250e, L(Y, r) = 0.5Y ? 500r (money demand), CF = 500?250r.
Taxes, government purchases, the money supply, and price level are T = 1000, G = 1500, M = 1000, and P = 1.
Calculate the equilibrium values for GDP Y , the interest rate r, consumption C, investment I, net capital outflow CF, net exports NX, and the exchange rate e.
I am very confused because I keep getting different answers. Below is the possible answers I have got.
Y = 3250, r = 0.1, C = 1250, I = 1250, CF = 250, NX = 0, and e = 1.
or
Y = 5000, r = 0.2 , C = 2500, I = 1250, CF = 250, NX = 750, and e = 1.5.
or
e Y = 4500, r = 1, C = 1750, I = 750, CF = 250, NX = 500, and e = 2.
or all three of those could be wrong, so if you could please help me find the correct solution, that would be greatly appreciated it.
Screenshot of the question from my worksheet is below
3. Consider the open economy IS / LM model with the following functions: 0 = 0.5(Y T), I = 1500 2507", NX = 1000 2506, L(Y, 7") = 0.5Y 500?" (money demand), CF 2 500 2507'. Taxes, government purchases, the money supply, and price level are T = 1000, G = 1500, M = 1000, and P = 1. Calculate the equilibrium values for GDP Y, the interest rate 7", consumption 0, investment I, net capital outow CF, net exports N X , and the exchange rate 6Step by Step Solution
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