Econ HW #3 - Kelly O'Boyle Economics 302 HW#3 Section 302 1...

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Kelly O’Boyle Economics 302 – HW #3 Section 302 1. a) Y=AK α L 1- α Y=0.3(1000) 1/3 (8000) 2/3 Y= 1,200 b) C=23+0.72(1200-155) C= 775.4 c) I=325-15.5(7) I= 216.5 d) 1200=775.4+216.5+220+NX NX= -11.9 e) This country is borrowing from foreigners. There is a direct relationship between domestic spending and domestic production. If spending increases, production increases as well. f) The increased government spending does not affect the level of output, consumption, or investment. However, net exports change to -36.9. (1200=775.4+216.5+245+NX) g) The increase in government spending did not completely crowd out investment spending because it is an open economy, so you can still invest in other economies. h) When government spending increases, the country’s real exchange rate increases because the value of our currency goes down. Domestic goods are then more attractive because the prices of foreign goods increased. i) MV=PY 300(6)=P(1200) P=1.5 E=e(P/P*) 3=e(1.5/2.5) e= 5 2. a) S G =T–G (1) 0 (2) 0 (3) 300-500=-200 b) S P =-1100+16375r+0.25(Y–T) (1) S P =-1100+16375(0.08)+0.25(6000–250) = 1647.5 (2) S P =-1100+16375(0.08)+0.25(6000–500) = 1585 (3) S P =-1100+16375(0.08)+0.25(6000–300) = 1635 c) Closed economy, NS=I (1) I=1647.5 (2) I=2000–250(0.08)=1980
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(3) 1980 d) NCO=NX (1) 0 The country would not be borrowing from or lending to foreigners.
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