Explain the attached questions below

6. Policy coordination and the world economy Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, gov- ernment spending, and taxes are given by C = 10 + 0.8 (Y - T), I = 10, G =10, and 7 =10 Imports and exports are given by IM = 0.BY and X =03 Y where Y denotes foreign output. a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports were iden- tically equal to zero-what would the multiplier be? Why would the multiplier be different in a closed economy? b. Assume that the foreign economy is characterized by the same equations as the domestic economy (with as- terisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. [Hint: Usethe equations for the foreign economy to solve for Y' as a function of Y and substitute this solution for Y* in part (a).] What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)? c. Assume that the domestic government, G, has a target level of output of 125. Assuming that the foreign government does not change G", what is the increase in G necessary to achieve the target output in the domestic economy? Solve for net exports and the budget deficit in each country. d. Suppose each government has a target level of output of 125 and that each government increases government spending by the same amount. What is the common in- crease in G and G necessary to achieve the target output in both countries? Solve for net exports and the budget deficit in each country. e. Why is fiscal coordination, such as the common increase in G and G* in part (d), difficult to achieve in practice?On April 24, 232D, obtained the following information on bonds of ]hh Limited: Par value = 51,000, coupon rate 535%, maturity date = January 1, 2025, interest payment dates = January lr July 1. A Determine the number of days in accrued for this bond. B Determine the acaned interest on the bond [use 3035:] convention} C Given that the market yield on the bond on April 24, 2512!] was 4.50%, determine full {dirty} price and clean price forAElC bond on this date. D What price will the bond trade at in the market? Explain E Suppose on April 24. EDZD, you purchased this bond in the market and held this bond for exactly one year {till April 24. 2011.]. The yield on this bond on April 24, 2011. was 115% and you decided to sell the bond. Assume you face 32% marginal tax rate and that 50% of capital gains are taxable. Assume also that coupon interest payments can be reinvested at the annual yield of 3%. 1Determine your gross income and gross return from your investment. 2 Determine your net income and net return from your investment 3 Decompose your net income into its components and comment on your results as a portfolio manager. (a) First consider an economy where the government budget is required to be balanced in recession. The economy is given by: Czcu+c1(YT) T=t+t1Y I=I_ G=T With{61{1,{t1{1 i. Derive an expression for Equilibrium output. ii. Suppose for that for some reason demand were to fall, so that en were to decrease. We are interested in by how much output would fall due to this decline in ca. Derive an expression for the decrease in y do to a decrease in Ca. (b) Now ippose that the economy is the same as above except that G = G, La. that G is constant, and the government budget is not required to be balanced in recession. i. Derive an expression for equilibrium output. ii. Derive an expression for the decrease in 3,; due to a decrease in [30. (c) Interpretation: i. Based on the expressions you derived in aii and bii, would the same decline in g cause a larger decline in the economy with a balanced budget requirement, or the economy in which the government was not required to run a balanced budget? ii. In economy a, the govermnent's budget remains balanced after the decline in output, i.e. that (T G) = 0. Suppose that in economy I: the government's budget was balanced before the decline in output. What happens to the government's budget after the decline in gutput; is it still balanced, in surplus, or decrt? 1.e (T G) 2: [1? iii. How do you think the condition of the government's budget af fects how the economy responds to a decline in demand in the two eoonomies above? How does the answer to part cii concern- ing the state of the government's budget relate to your answer in part ci concerning which economy would experience a. larger decline in output given the same fall in ca