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The following set of equations describes the production, consumption, investment, government purchases, and tax in a small open economy: Y = Y = F(K,L)=1,200 Y

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The following set of equations describes the production, consumption, investment, government purchases, and tax in a small open economy: Y = Y = F(K,L)=1,200 Y = C+I+G+NX C =125 + 0.75( Y - T) I = 1(r*) =200 - 10r G =G=150 T =T =100 In this model, we consider the Y% interest rate as Y (instead of Y/100). a. Calculate the value of National saving. b. Draw the saving line on Graph 1 and label it S1. c. Draw the investment function on Graph 1 and label it It. d. Assume that the world real interest rate is 10%. What is the value of net exports in the small open economy? To make our calculations simple, we consider the 10% interest rate as 10 (instead of 0.1). e. The world interest rate is 10%. The government in the small open economy raises its spending from Gi = 150 to G2 = 200. Draw the new saving line on Graph 1 and label it S2. Calculate the values of national saving, investment, and net exports in the small open economy? f. Assume that the saving line is S1, and the investment function is I1. An expansionary fiscal policy abroad, such as an increase in government spending in the United States, raises the world interest rate from 10% to 15%. Calculate the values of national saving, investment, and net export in the small open economy? g. The world interest rate is 10%. The government in the small open economy provides an investment tax credit of $50. The new equation of investment can be written as follows: I = 250-10*r. Draw the new investment function on graph 1 and label it 12. With the saving line Si and investment function 12, calculate the value of net exports in the small open economy

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