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Question:
Y- C = 1+9 C - by + b T = a T - ty = d f Y - N X = gE Thus the Matrix of the system of equation is: - 1 Lb - bo -In 0 10 d f 0 0 -1 NX 9EAn economy is described by the following equations: Y=C+Iq+Go+ NX C=a+b(Y -I) I=d+tY NX = JY -g E where a, b, d, t, f and g are positive parameters. Y is the GDP, C is private consumption, Go is government's consumption, NX is net exports, T is taxes and E is the real exchange rate. Assume that this country uses a fixed exchange rate regime (thus E is exogenously given). 3. Write the above system of equation in matrix form. Consider the vector of endogenous variable to be X= [ Y, C, T, NX]. 4. Under which condition(s) does this system have a unique solution? 5. Solve the system by using matrix inversion. 6. Find the equilibrium value of GDP by using Cramer's rule. Check that you get the same answer as for question 5. 7. How would you change your answer to question 3 if you want to find the value of E that keeps the GDP equal to its potential level, Y? Hint: you will have to solve the system for E, and that means the vector of endogenous variables will change a bit from the one from question 3