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PS 3_BScII_Unsolved

PS 3_BScII_Unsolved - Lahore School of Economics...

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Unformatted text preview: Lahore School of Economics Macroeconomics II BSC II Problem Set 3 – Due 12 th March, 2011 The Open Economy – Chapter 5 Question 2 Consider an economy described by the following equations Y = C + I + G + NX Y = 5000 C = 1000 T = 1000 C = 250 + 0.75(Y – T) I = 1000 – 50r NX = 500 – 500e r = r* = 5 a. In this economy, solve for national savings, investment, trade balance, and the equilibrium exchange rate. b. Suppose now that G rises to 1250. Solve for national savings, investment, trade balance, and the equilibrium exchange rate. Explain what you find. c. Now suppose that the r* = 10% (G is again 1000). Solve for national savings, investment, trade balance, and the equilibrium exchange rate. Explain what you find. Question 3 The small open economy of Leverett Question 5 What will happen to the trade balance and the real exchange rate of the small open economy...
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PS 3_BScII_Unsolved - Lahore School of Economics...

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