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section4

# section4 - Econ 100B Section 101 102 Summer 2009 UC...

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Econ 100B Section 101 & 102 Summer 2009 – UC Berkeley Phakawa On Jeasakul July 6, 2009 Practice Problems 1. (Mankiw 5.2) 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 50 r , NX = 500 500 e , r = r * = 5. a. In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange rate. b. Suppose now that G rises to 1,250. Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. c. Now suppose that the world interest rate rises from 5 to 10 percent. ( G is again 1,000). Solve for national saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find. 2. (Mankiw 5.6) Suppose that some foreign countries begin to subsidize investment by instituting an investment tax credit. a. What happens to world investment demand as a function of the world interest rate? b. What happens to the world interest rate? c.

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section4 - Econ 100B Section 101 102 Summer 2009 UC...

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