V3

Consider an economy described by the following equations: Y =C+I+G+NX, Y = 7 900 G = 2 250 T = 2 000 C = 650 + 1/4 (Y - T). 1 = 1 100 - 55r, NX = 3 600 - 250E, r * = 9 a. In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate. b. Now suppose that the world nominal interest rate is equal to 8 percent, global inflation rate is 4 percent. What is the new world real interest rate. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Show the change from (a) to (b) using graph