Intermediate economics;

#11. (30 pts) Consider the following Neoclassical model of the economy, where the domestic interest rate r and the world interest rate r, are in percentage terms. Show all your work. Supply Demand Y = 1000 C = 100 + 0.8(Y -T) NX = 100 -1006 / = 200 - 10r r. = 5% G = 0, T=0 (a) (10 pts) Find the equilibrium real interest rate, national saving, and investment in a closed economy with no public sector. Show the equilibrium real interest rate on a saving-investment diagram with r measured on the vertical axis. (b) (10 pts) Now assume the small economy opens up to trade. Calculate the real exchange rate, trade balance and net capital outflow. Show the trade balance on a saving-investment diagram with e measured on the vertical axis.(c) (10 pts) The price level in the domestic and foreign countries is initially equal to P = P. = 100. The foreign country is experiencing rapid growth in real GDP of 8% and targets a 2% inflation rate. The domestic country is experiencing no growth in real GDP or the price level. What does the central bank in the foreign country need to do to hit the inflation target and what will be the resulting nominal exchange rate? Defend your answer.#12. (30 pts) AD-SRAS-LRAS model of the economy. Assume the SRAS curve is horizontal. (a) (15 pts) Assume the uncertainty associated with upcoming presidential and congressional elections is leading U.S. consumers to be cautious and reduce their confidence about the future path of the economy. As a result, they save more and consume less. Use the AD-SRAS-LRAS diagram to discuss the predicted short-run and long-run impacts on the price level, real GDP and unemployment. (b) (15 pts) What are the policy options available to the Federal Reserve to address the fall in consumer confidence? What are the policy options available to fiscal policymakers? Use an AD-SRAS-LRAS diagram to support your discussion.#13. (15 pts) True or False. If "False", correct the statement to make it true. (a) (5 pts) "If inflation is zero in two countries, then purchasing power parity (c = 1) must exist between the two countries." (b) (5 pts) "Nominal GDP is less than MI in the United States." (c) (5 pts) "Labor force participation rates in the U.S. have been falling in past years, primarily due to changing demographics and retirement of the 'baby boomers*."