MGEA06H3 Study Guide - Final Guide: Exchange Rate, Risk Premium, Money Supply

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MGEA06H3 Full Course Notes
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MGEA06H3 Full Course Notes
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A small open economy that has perfect financial capital mobility, and no risk premium, can be described by the following equations: Consumption: c = 1000 + 0. 8(y t) 50r. Net exports: nx = 1000 500 , where is the real exchange rate and it is quoted number of us$ (foreign currency in this question) per domestic currency, us$/dc. Real money demand: l(r, y) = 0. 6y 500r. The u. s. (foreign) price level: pus = 1. 40. Note: real interest rates, r and rw, are expressed in percentage points. For example, if r = 5, this is interpreted as 5%.

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