Homework answers / question archive / Open Economy IS-LM-FE model The behaviour of households and firms in an open economy is represented by the following equations: Desired consumption: cd = 350 +0

Open Economy IS-LM-FE model The behaviour of households and firms in an open economy is represented by the following equations: Desired consumption: cd = 350 +0

Economics

Share With

Open Economy IS-LM-FE model The behaviour of households and firms in an open economy is represented by the following equations: Desired consumption: cd = 350 +0.5Y – 200r Desired investment : id = 250 – 300r Net exports : NX = 0.05YF – 0.1Y - 0.5e Real money demand : Md = Y – 4000(r + ) ? where expected inflation is T = 0 and YF = 2000 denotes the income of foreign households. Government purchases are G=95 and the supply of money by M=480. Assume that international interest parity holds and that the economy is initially in a general equilibrium with a real exchange rate, e=90 and output Y=1200. Questions 9 to 18 relate to this information.
Question 11 (4 points) In the initial general equilibrium, what are the foreign real interest rate and the price level? P* = 2; f = 0.05 p* = 0.5;rf = 0.12 P* = 0.5; f = 0.06 P* = 2; rf = 0.06