Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Open-Economy IS-LM, calculate exchange rate, level of income, ntw exports. a,b,c,d,e. 1 [Open Economy lS-LM] A small open economy is initially described by the following

Open-Economy IS-LM, calculate exchange rate, level of income, ntw exports. a,b,c,d,e.

image text in transcribed
1 [Open Economy lS-LM] A small open economy is initially described by the following equations c = 50 + 0.50(Y T) 1 = 200 30:- NX = 100 25.2 M d () =Y20r P G=150 T=50 M=1,500 P=3 r*=5 Calculate the equilibrium exchange rate, level of income, and net exports. (6 ptSl . Assume the central bank maintains a xed exchange rate to the level in part (a). If the government wants to increase output by 10%, how can they achieve this goal using tax policy? (What must they set T to?) Which components on drive the increase in output? (8 pts) Now assume the exchange rate is floating. Does this change your recommendation in part (b)? Briefly explain. (3 pts) . Go back to the equilibrium in part (a) and assume the exchange rate if fixed to its equilibrium value. A large open economy starts raising their interest rates to combat ination. This causes 7'\" to rise above its current level. Graph the new equilibrium and label it clearly (you don't need to calculate numbers). (4 pts) In our models, we assume that the central bank can always maintain the exchange rate at their desired level. Briefly describe two reasons why a central bank might have trouble maintaining the exchange rate in practice. (4 pts)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Ethics Of The New Economy Restructuring And Beyond

Authors: Leo Groarke

1st Edition

1554586933, 9781554586936

More Books

Students also viewed these Economics questions

Question

Identify the costs associated with going public.

Answered: 1 week ago

Question

6. How can a message directly influence the interpreter?

Answered: 1 week ago