2. Assume that the following characterizes a small open economy: [4 points] Y = 3000, C = 0.6*(Y - T), I = 1000 - 200r, NX = 500 - 500e, r* = 2, G = 1000 ,T = 800.
a. Solve for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate.
b. Does this economy have a trade surplus or trade deficit?
c. Is this economy a net borrower or a net lender?
2. Assume that the following characterizes a small open economy: [4 points] Y = 3000, C = 0.6*(Y - T), I = 1000 - 200r, NX = 500 - 500e, r* = 2, G = 1000 ,T = 800.
a. Solve for the equilibrium values of consumption, investment, net exports, net capital outflow, and the real exchange rate.
b. Does this economy have a trade surplus or trade deficit?
c. Is this economy a net borrower or a net lender?
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Related questions
Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.
| C = 0.8(DI) + 1000 | C = Consumption expenditure, DI = Disposable Income |
| I = 2000 | I = Investment expenditure |
| G = 1000 | G = government expenditure |
| X = 1600 | X = spending on exports |
| M = 1800 | M = spending on imports |
| DI = Y - T | Y = real GDP, T = tax revenues/> |
| T = 1000 | |
| Yp = 12000 | Yp = Potential GDP |
Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.
| a. |
inflationary gap |
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| b. |
recessionary gap |
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| c. |
no output gap |
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| d. |
government budget surplus |
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| e. |
government budget deficit |
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| f. |
balanced government budget |
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| g. |
trade deficit |
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| h. |
trade surplus |
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| i. |
net exports of zero |
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Assume that in a small open economy where full employment always prevails, national saving is 300.
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