Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please provide the answer with a detailed process,thank you! Open Economy Two Large country problem USA Initial Conditions Cd 2 310 + 0.40m 200wu 1d

please provide the answer with a detailed process,thank you!

image text in transcribed
Open Economy Two Large country problem USA Initial Conditions Cd 2 310 + 0.40m 200wu 1d = 120 7 200rW Y = 1000 T: 200 (3 =275 China lnitial Conditions ch = 480+ Am 7 TF) 7 300rW 1% = 255 300rW YF = 1500 TF 7 300 6,: = 300 a) [5 points) What is the equilibrium real interest rate that clears the international goods market? Showall work. b) (5 points) Compare the level ofabsorption in each country to the income generated in each country. Is the U5 spending beyond its means? ls China the lender? Explain using real numbers! Draw two diagrams side by side. with the USA on the left and China country on right. Locate this initial equilibrium as points A on both diagrams {there are four point A's, two on each diagram). Be sure to label diagrams completely labeling the trade decit/surplus on each graph, etc. (10 points for correct and completely labeled diagram) c] {5 points) Now let the U5 conduct expansionaryflscal policy so that G rises by 300 to 575. We assume that the government spending multiplier [AYIACB is 1.5, consistent with the multiplier estimated by the White House economists. Recalculate the new equilibrium real interest rate that clears the international goods market and the associated new levels of desired savings and investment for each country and label these new equilibrium points on your existing diagram as point B. Please show ali work. d] {5 points) What has happened to the US's trade balance and why? e) [5 points) Are these results consistent with the US going to AA. the proposition put forth by Fareed-Zakaria in the Colbert clip? Why or why not? f) ('10 points] Explain what wou ld happen to the trade balance for the US if China experiences a recession (i.e., China's output falls], all else constant. Please be specicasto what would happen to US absorption and why. Note, this discussion is worth 10 points. Feel free to support your answer with a diagram or two. Note: You will upload this work, along with all the other questions, at the end of the exam. Enter the word "Finished" into the textbox below when ready to move on

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

Business Law Principles For Today's Commercial Environment

Authors: David P Twomey, Marianne M Jennings

2nd Edition

0324303947, 9780324303940

More Books

Students also viewed these Economics questions

Question

3. How much information do we need to collect?

Answered: 1 week ago

Question

2. What types of information are we collecting?

Answered: 1 week ago

Question

5. How quickly can we manage to collect the information?

Answered: 1 week ago