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Econ. 102. Homework 7. Due: April 19, 2010.
*******.
1.
Show your derivation and calculation explicitly.
2.
Use the
ruler
to draw graphs. (Also show the
scale
explicitly).
3.
Email submission of your answer will not be accepted.
4.
Do not copy someone else’s answer.
******.
1. [ Mankiw p. 147] Consider a small country economy described by the following equations.
(1)
Y = 5,000
(2) Y = C + I + G + NX
(3)
C = a + b(YT)
.
(4)
I = c – dr.
(5)
G = 1000.
(6)
T = 1000
(7)
r = r* = 5 .
(8)
NX = 500  500
ε
where a = 250, b = 0.75, c = 1,000, d = 50.
Equilibrium Analysis:
(a)
Derive SI from (1) – (7) and use S – I = NX, i.e., net capital flow always equals the trade balance, to
find the equilibrium
ε
and NX.
Also show your answer
graphically
in the (
ε
, NX) space. [5]
Comparative static:
(b) Suppose G = 1,000 rises to G’ = 1,250.
Find the new equilibrium
ε
and NX. Also show your answer
graphically
in the (
ε
, NX) space. [5]
(c)
Suppose r* = 5 rises to r*’ = 10.
Find the new equilibrium
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 '10
 Shieh,YeungNan

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