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420worksheet18ans

# 420worksheet18ans - exports Y=200 0.8(Y-100 900-20*5 200...

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ECON 420-002 and 004, Fall 2008 Worksheet 18 Consider the following model: C=200 + 0.8(Y-T) I=900-20r* G=T=100 NX=300-8e r*=5% (M/P)=0.5Y-200r* M=1000, P=2 a. Find the IS* equation. Y=200+0.8(Y-100)+900-20*5+100+300-8e Y=200+0.8Y-80+900-100+100+300-8e 0.2Y=1320-8e Y=6600-40e b. Find the LM* equation. (1000/2)=0.5*Y-200*5 500=0.5Y-1000 0.5Y=1500 Y=3000 c. What is the output? Equilibrium exchange rate? Consumption? Investment? Net Exports? Y=3000 6600-40e=3000 40e=3600 e=90 C=200+0.8(3000-100)=2520 I=900-20*5=800 NX=300-8*90=-420 d. Now suppose fiscal authorities increase G to 200. Assuming flexible exchange rate, solve for new equilibrium output, exchange rate, consumption, investment and net

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Unformatted text preview: exports. Y=200+0.8(Y-100)+900-20*5+200+300-80e Y=200+0.8Y-80+900-100+200+300-80e 0.2Y=1420-8e Y=7100-40e In equilibrium: 7100-40e=3000 40e=7100-3000=4100 e=102.5 Equilibrium output: 3000 C=200+0.8(3000-100)=2520 I=900-20*5=800 G=200 NX=300-8*102.5=-520 e. Instead of (d), let us suppose that the monetary authorities increase M to 1200. Assuming flexible exchange rate, solve for new equilibrium output, exchange rate, consumption, investment and net export. 1200/2 = 0.5Y-200*5 600=0.5Y-1000 1600=0.5Y Y=3200 6600-40e=3200 3400=40e e=85 C=200+0.8*(3200-100) = 200+2480 = 2680 I=900-20*5=800 NX=300-8*85=-380...
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420worksheet18ans - exports Y=200 0.8(Y-100 900-20*5 200...

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