Stats Solutions

Solution: Consider the following long run model of a small, open economy with perfectly mobile capital: - N C F=S-1 - N X=N C F - C=150+0.75(Y-T) - I=2000-20,000

Question: Consider the following long run model of a small, open economy with perfectly mobile capital:

- \(\quad N C F=S-1\)

- \(\quad N X=N C F\)

- \(\quad C=150+0.75(Y-T)\)

- \(\quad I=2000-20,000 r\)

- \(\quad N X=1000-1000 \varepsilon\)

- \(r=r_{w}^{*}\)

- \(G=800 ; T=500\)

- \(\quad Y=3500\)

  1. If the equilibrium interest rate in the world's market for loanable funds is \(6 \%\left(\mathrm{r}_{\mathrm{w}}^{*}=0.06\right)\), what will domestic national saving ( \(\mathrm{S}\) ) and investment (I) be in equilibrium? What will be the equilibrium value of net exports (NX) and the real exchange rate ( \(\varepsilon\) )?
    c. If goods cost $2 per unit in this economy and £ 3 per unit in the rest of the world, what is this economy's equilibrium nominal exchange rate against the euro (i.e. - e(/$))? Hint: you will need to use the real exchange rate you found in part b to calculate it.
    Price: $2.99
    Solution: The downloadable solution consists of 2 pages
    Deliverable: Word Document


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