Consider an economy described by the following
equations:
Y=C+I+G+NX,
Y=8,000
G=2,500
T=2,000
C=500 + 0.75(Y−T)
I=900−50r
NX=1,500−250ϵ
r=r∗=8.
In this economy, solve for private saving, public saving,
national saving, investment, the trade balance, and the equilibrium
exchange rate.
Suppose now that G is cut to 2,000. Solve for private
saving, public saving, national saving, investment, the trade
balance, and the equilibrium exchange rate. Explain what you
find.
Now suppose that the world interest rate falls from 8 to 3
percent....