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Consider an economy described by the following equations

Consider an economy described by the following equations: Y = C + I + G + NX Y = 5,000 G = 1,000 T = 1,000 C = 250 + 0.75 (Y – T) I = 1,000 – 50 r NX = 500 - 500ε r = r* = 5 a. In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate. b. Suppose now that g rises to 1,250. Solve for national saving, investment, the trade balance and the equilibrium exchange rate. Explain what you find. c. Now suppose that the world interest rate rises from 5% to 10%. (G is again 1,000.) Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.

Apr 29 2020 View more View Less

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