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homework4spring2006 - Economics 102 Spring 2006 Homework#4...

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Economics 102 Spring 2006 Homework #4 Problem 1 Suppose there are only two countries, Macronia and Micronia and that these two countries trade with each other. Use the Classical Model and the following information to answer this problem. Hint: You will find it helpful to be very organized in your work on this problem: I would suggest that you make two columns on your page and in the left-hand column compute the calculations for Macronia (please label the top of the column with the country’s name) and in the right-hand column compute the calculations for Micronia (label the top of the column with Micronia’s name). This will help you keep track of all the various details involved in this problem. Use this Classical Model: Y = C + S P + T – TR Y = C + I + G + (X – M) KI = M – X S G = T – TR – G NS = S P + S G = Y – C – G I = Y – C – G + KI Leakages = Injections in Equilibrium or S P + T – TR + M = I + G + X Note: in the table below i R is the real interest rate and in the problem it is expressed as a decimal: e.g. if the real interest rate is 10%, then i R enters the mathematical expression as .1.
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