PS_6 - METU Department of Economics Econ 202 Macroeconomic...

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1 / 2 METU Department of Economics Econ 202 Macroeconomic Theory Instructors: Şirin Saraçoğlu – Ebru Voyvoda 2010-2011 Spring Semester Problem Set 6 Q.1 Consider an economy summarized by the following equations:  = ??? + ????? ° ? ± = ???? ? ² = ??? − ??³ ?  = ??? ? = ??? + ??? ´ ´ + ???? ? µ = ??? − ??? ´ ´ + ???? µ = ???? − ??³ ? µ · = ???? where E is the nominal exchange rate defined as price of foreign currency in terms of domestic currency and price levels are equal to 1. Assume that there are only 2 countries in the world. ? corresponds to GDP of foreign country and currency of this country is called as “foreign currency”. a) What is the equilibrium level of output, interest rate, government budget balance and the current account when  = ? and ? = ???? ? b) What should be the level of µ · to keep Y at its initial value while running balanced current account and balanced budget
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This note was uploaded on 03/22/2012 for the course ECON 202 taught by Professor Tunc during the Spring '10 term at Middle East Technical University.

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PS_6 - METU Department of Economics Econ 202 Macroeconomic...

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