Question

Consider an economy described by the following equations:
Y = C + I + G + NX,
Y = 5,000,
G = 1,000,
T = 1,000,
C = 250 + 0.75(Y −T ),
I = 1,000 − 50r,
NX = 500 − 500Ԑ,
r = r* = 5.
a.    In this economy, solve for national saving, investment, the trade balance, and the equilibrium exchange     rate.
b.    Suppose now that G rises to 1,250. Solve for national saving, investment, the trade balance, and the     equilibrium exchange rate. Explain what you find.
c.    Now suppose that the world interest rate rises from 5 to 10 percent. (G is again 1,000.). Solve for national     saving, investment, the trade balance, and the equilibrium exchange rate. Explain what you find.​

Answer 1

Given Y= C+I+NX = 5,000; G=1,000; T= 1,000; C=250+0.75(Y-T), I= 1,000-50r,; NX=500-500e & r=r*=5

In an economy,

National Savings= S = Public Savings + Private Savings

Private Savings = Y-T-C = 5,000-1,000-(250+0.75(5000-1000)= 750

Public Savings= T-G= 1,000-1,000 = 0

therefore, National Savings = 750+0 =...