401ps5-10 - ECON 401A Autumn 2010 Hartman PROBLEM SET V(for...

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ECON 401A Hartman Autumn 2010 PROBLEM SET V (for Thursday, November 4) Let Y real aggregate output N labor K capital W nominal wage rate (* ) PP domestic (foreign) price level C real consumption T real taxes I real investment ) rr domestic (foreign) real interest rate measured as a percent (*) ii domestic (foreign) nominal interest rate measured as a percent G real government purchases M nominal money stock e nominal exchange rate in units domestic currency/foreign currency */ Qe  real exchange rate in units domestic goods/foreign good 1. This problem involves an open economy in which the nominal wage rate is fixed exogenously. No inflation is expected domestically or abroad so ir and ** , the exchange rate is expected to remain constant, the real and nominal interest rate in the rest of the world is 4 , and 16 GT while 96 M . Assume that 1 W , and suppose that the production function is 1/2 8 YN . The consumption function is 3 () 8 4 CY T Y T
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