Macroeconomics question??? Someone please help!!!

Posted on 2014-11-20 11:49:00 in Economics by TROY

1. The following equations characterize the goods market in an open economy:

 

C = 600 + 0.75YD                              I = 400 – 3500i + 0.25Y   

G = 500                                              X = 800 + 0.2Y* + 300 e

T = 480           Q = 0.2Y – 700 e       e = 1    Y* = 6000       i = 4%

 

1. Find the equilibrium output.


2. Find the net exports at equilibrium output.


3. Find the equilibrium output and net exports if the real exchange rate increases to 1.2.

 

2. Using the basic IS-LM model (graph) in the open economy, illustrate and analyze the effects of lower taxes on the equilibrium output (Y), nominal interest rate (i) and the nominal exchange rate (E). Is the effect of lower taxes on output smaller or greater than that in a closed economy? Why?

 

3. It is believed that fiscal policy is more effective under a fixed exchange rate than a flexible exchange rate. Using the IS-LM model, illustrate and explain this differential impact for a contractionary fiscal policy.

 

4. Depict the equilibrium situation in the labour market using the Wage-Setting and Price-Setting relations and carefully label the graph. Use this model to illustrate and explain what happens to the natural rate of unemployment and real wages when

1. Reduced competition increases the price mark-up.


2. Unemployed people’s claims for Employment Insurance benefits are more closely monitored.

 

5. Use the AD-AS model to depict the situation of an economy that is producing under its Natural Level of output. Identify the Short-Run and Medium-Run equilibrium for this economy. Next, explain and illustrate (on your graph) how this economy moves from its short-run to its medium-run equilibrium.

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