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Question 1 of 3

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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 – 50r,
NX = 500 – 500ε,
r = r* = 5r.

In this economy, solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate.

Private Saving =

Public Saving =

National Saving =

Investment =

Net Exports (Trade Balance) =

Exchange Rate =

Review Chapter 6 and the case study on The U.S. Trade Deficit, for a discussion of the determinants of saving, investment, net exports, and the exchange rate in the small open economy.
Review Chapter 6 and the case study on The U.S. Trade Deficit, for a discussion of the determinants of saving, investment, net exports, and the exchange rate in the small open economy.

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 – 50r,
NX = 500 – 500ε,
r = r* = 5r.

Suppose now that G rises to 1,250. Solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate.

Private Saving =

Public Saving =

National Saving =

Investment =

Net Exports (Trade Balance) =

Exchange Rate =

Review Chapter 6 and the case study on The U.S. Trade Deficit, for a discussion of the determinants of saving, investment, net exports, and the exchange rate in the small open economy.
2:58

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 – 50r,
NX = 500 – 500ε,
r = r* = 5r.

Now suppose that the world interest rate rises from 5 to 10 percent. (G is again 1,000.) Solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate.

Private Saving =

Public Saving =

National Saving =

Investment =

Net Exports (Trade Balance) =

Exchange Rate =

Review Chapter 6 and the case study on The U.S. Trade Deficit, for a discussion of the determinants of saving, investment, net exports, and the exchange rate in the small open economy.
2:58