What would be the step by step to reach equilibrium?
Question 2 (30 points) - Chapters 4, 5 & 6 Suppose the world consists of only one pair of open economies, country A and country B, and these countries only trade with each other. Country A only produces food whose output is measured in standard units, where one unit of YA is equal to 250 kilograms of food. Country B only produces clothing in standard units, where one unit of YB is equal to 10 kilograms of clothing. The table below provides some selected information about the economies of these countries. Keep your answers to at least 4 decimal places. Country A Country B Production function: YA = 3xK0.501 0.50 Production function: YB = K0.501 0.50 Capital stock: K = 500 Capital stock: K = 850 Labour supply: L = 500 Labour supply: L = 850 Consumption function: C = 150 + 0.5(Y - T) Consumption function: C = 110 + 0.65(Y - T) Investment function: I = 804 - 80r Investment function: I = 150 -90r Gov't sector: G = 100 & T = 100 Gov't sector: G = 110 & T = 110 Net export function: NX = 841 - 975XEBS/A$ Net export function: NX = 748 - 614 x 1 EB$/A$ Monetary sector: Monetary sector: Md Real money demand = P 0.8Y - 100r Real money demand = 0.9Y - 200r Nominal price level = 1 Nominal price level = 1 Use the long-run classical model of an open economy to answer the following questions. Both countries have perfect financial capital mobility and no risk premium. Hint: Since there are only two open economies, both are large open economies.Question 2 (30 points) - Chapters 4, 5 & 6 Suppose the world consists of only one pair of open economies, country A and country B, and these countries only trade with each other. Country A only produces food whose output is measured in standard units, where one unit of YA is equal to 250 kilograms of food. Country B only produces clothing in standard units, where one unit of YB is equal to 10 kilograms of clothing. The table below provides some selected information about the economies of these countries. Keep your answers to at least 4 decimal places. Country A Country B Production function: YA = 3xK0.501 0.50 Production function: YB = K0.501 0.50 Capital stock: K = 500 Capital stock: K = 850 Labour supply: L = 500 Labour supply: L = 850 Consumption function: C = 150 + 0.5(Y - T) Consumption function: C = 110 + 0.65(Y - T) Investment function: I = 804 - 80r Investment function: I = 150 -90r Gov't sector: G = 100 & T = 100 Gov't sector: G = 110 & T = 110 Net export function: NX = 841 - 975XEBS/A$ Net export function: NX = 748 - 614 x 1 EB$/A$ Monetary sector: Monetary sector: Md Real money demand = P 0.8Y - 100r Real money demand = 0.9Y - 200r Nominal price level = 1 Nominal price level = 1 Use the long-run classical model of an open economy to answer the following questions. Both countries have perfect financial capital mobility and no risk premium. Hint: Since there are only two open economies, both are large open economies
