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A small open economy is described by the following equations:

C = 300 +.8 (YT)

I = 900 – 50 r

NX = 500 – 100 ε

M/P = Y – 125 r

G = 1000

T = 1000

M = 8000

P = 2

r* = 8

Based on the graph below, choose the correct equation for the IS* and LM* curves.

Review Chapter 13 pages 369-373, along with Figures 13-1, 13-2, and 13-3, for a discussion of how to derive the IS* curve and LM* curve, and how to use them to determine equilibrium for the economy.

Calculate the equilibrium exchange rate, level of income, and net exports.

The equilibrium exchange rate, ε, = .

The equilibrium level of income, Y, = .

The equilibrium level of net exports, NX, = .

Review Chapter 13 pages 369-373, along with Figures 13-1, 13-2, and 13-3, for a discussion of how to derive the IS* curve and LM* curve, and how to use them to determine equilibrium for the economy.
Review Chapter 13 pages 369-373, along with Figures 13-1, 13-2, and 13-3, for a discussion of how to derive the IS* curve and LM* curve, and how to use them to determine equilibrium for the economy.
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      A small open economy is described by the following equations:

      C = 300 +.8 (YT)

      I = 900 – 50 r

      NX = 500 – 100 ε

      M/P = Y – 125 r

      G = 1000

      T = 1000

      M = 8000

      P = 2

      r* = 8

      Assume a floating exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government reduces its spending by 100.

      The exchange rate, ε, declines to .

      The level of income, Y, is unchanged at .

      The level of net exports, NX, rises to .

      Money supply, M, is unchanged at .

      Review Chapter 13 pages 369-373, along with Figure 13-4, for a discussion of how changes in government purchases affect the economy in the Mundell-Fleming model under floating exchange rates.
      Review Chapter 13 pages 369-373, along with Figure 13-4, for a discussion of how changes in government purchases affect the economy in the Mundell-Fleming model under floating exchange rates.
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          A small open economy is described by the following equations:

          C = 300 +.8 (YT)

          I = 900 – 50 r

          NX = 500 – 100 ε

          M/P = Y – 125 r

          G = 1000

          T = 1000

          M = 8000

          P = 2

          r* = 8.

          Now assume a fixed exchange rate. Calculate what happens to the exchange rate, the level of income, net exports, and the money supply if the government reduces its spending by 100.

          The exchange rate, ε, is unchanged at .

          The level of income, Y, declines to .

          The level of net exports, NX, is unchanged at .

          Money supply, M, declines to .

          Review Chapter 13 pages 377-381, along with Figure 13-7, for a discussion of the Mundell-Fleming model under fixed exchange rates. See also the Case Study entitled, “The International Gold Standard.” Review Chapter 13 pages 380-382, along with Figure 13-8, for a discussion of how changes in government purchases affect the economy in the Mundell-Fleming model under fixed exchange rates.
          Review Chapter 13 pages 377-381, along with Figure 13-7, for a discussion of the Mundell-Fleming model under fixed exchange rates. See also the Case Study entitled, “The International Gold Standard.” Review Chapter 13 pages 380-382, along with Figure 13-8, for a discussion of how changes in government purchases affect the economy in the Mundell-Fleming model under fixed exchange rates.
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