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Pervioulsy I have posted first two parts now i am posting other 2 parts please answer it Thank you As per your demand b (b)
Pervioulsy I have posted first two parts now i am posting other 2 parts please answer it Thank you
As per your demand b
(b)
LM curve equation is at equilibrium when Money supply= Real money demand
28000=0.25Y-200(r+0)
At r=5%, Y=112040.0000
Substituting value of Y in Net foreign investment function
Net foreign investment=-37207
NX=Net foreign investment=8000-500e=-37207
Real exchange rate=90.4140
Question 2 (20 points) - Topics 4 & 5 Home is a small open economy with perfect capital mobility, and she can be described by the following set of equations: Full-employment level of output: YFE = 60000 Consumption: C = 12250 +0.8(Y T) - 2000r Investment: I = 14000 - 1500r Net exports: NX(&) = 8000 500, where & = the real FC/DC exchange rate Taxes: T = 7500 Money supply: MS = 28000 Real money demand: L(r + ,Y)= 0.25Y - 200(r + T) Expected inflation rate: 7 = 0% Note: Real interest rates, r, is expressed in percentage points. For example, if r = 5, then r= 5%. Keep your answer to 3 decimal points if necessary. c) Redo part (b). (6 points) d) Suppose the government of Home wants to balance the trade account via a change in government spending; and at the same time, the central bank wants to achieve price stability (i.e., keeping the price level fixed at the initial level) via a change in money supply, find the level of government spending and money supply that will achieve these goals simultaneously. (6 points) Question 2 (20 points) - Topics 4 & 5 Home is a small open economy with perfect capital mobility, and she can be described by the following set of equations: Full-employment level of output: YFE = 60000 Consumption: C = 12250 +0.8(Y T) - 2000r Investment: I = 14000 - 1500r Net exports: NX(&) = 8000 500, where & = the real FC/DC exchange rate Taxes: T = 7500 Money supply: MS = 28000 Real money demand: L(r + ,Y)= 0.25Y - 200(r + T) Expected inflation rate: 7 = 0% Note: Real interest rates, r, is expressed in percentage points. For example, if r = 5, then r= 5%. Keep your answer to 3 decimal points if necessary. c) Redo part (b). (6 points) d) Suppose the government of Home wants to balance the trade account via a change in government spending; and at the same time, the central bank wants to achieve price stability (i.e., keeping the price level fixed at the initial level) via a change in money supply, find the level of government spending and money supply that will achieve these goals simultaneously. (6 points)Step by Step Solution
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