Answer to Question #158314 in Macroeconomics for Manvule Makayi

Question

Consider a small open economy with the following information:

C = 50 + 0.80 (Y

I = 200 – 2,000r

𝑵𝑿 = 𝟏𝟎𝟎 − 𝟐𝟓𝜺 (𝑴/𝑷)𝒅 = 𝒀 − 𝟒, 𝟎𝟎𝟎𝒓 G = 300

T = 300 M = 4,000 P= 4

𝒓∗ = 𝟓%

̶ T)

 a. Estimate the equilibrium exchange rate, level of income, and net exports in the economy. (10 marks)

b. Suppose the economy is under a floating exchange rate. Due to the COVID-19 pandemic, the government increases its spending by 100. Estimate the exchange rate, the level of income, net exports and the money supply.

Answer 1

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