EC111Class17Questions

# EC111Class17Questions - (b At what interest rate does...

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EC111 MACROECONOMICS Spring Term 2012 EC111 Class Exercise 17 1. What factors determine exports and imports of goods and services? 2. An economy is described by the following relationships: Consumption: C = 100 + 0.6(Y T d ) Investment: I = 200 r Government expenditure: G = 200 Direct tax: T d = 200 Exports: X = 190 50e Imports: F = 0.1Y + 50e where Y is output, r is the interest rate, e is the exchange rate (a) Derive the IS curve and the balance of trade (given r) for e = 1. (b) At what interest rate does external balance occur?
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Unformatted text preview: (b) At what interest rate does external balance occur? (c) Given the interest rate derived in (b) how does the balance of trade change as the exchange rate appreciates from e = 1 to e = 2? (d) Given e = 1 and r as above, how does the balance of trade change as government expenditure increases from G = 200 to G = 300? 3. Describe and explain the effectiveness (or otherwise) of monetary and fiscal policy under fixed exchange rates using the IS-LM diagram with a vertical BP curve....
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